Crude for August delivery fell US$3.25, or four per cent, to settle at $78.20 per barrel on the New York Mercantile Exchange. That's down almost 30 per cent from a peak in February. It could keep falling if the U.S. and world economies continue to sputter.
Problems are everywhere.
The U.S. isn't generating enough jobs, Europe is headed for recession, and China, the world's powerhouse economy, is starting to slow. Adding to the concern, few economists expect the Fed's latest effort to boost growth, announced Wednesday, will have much impact.
At least there's some stimulus at the pump.
Cheaper oil means cheaper gasoline. And on Thursday, the U.S. average for gasoline dropped to $3.472 per gallon (91 cents a litre). That's 17 cents cheaper than a year ago and down 46 cents from its peak in early April.
In Canada, the average price at the pump was C$1.237 per litre, down from $1.271 a month ago, according to GasBuddy.com.
"We're grinning ear to ear," said Patrick DeHaan, a senior petroleum analyst at GasBuddy.com. "This was so unexpected just a few weeks ago, and it's such great timing just as people are hitting the road" on summer trips.
Oil fell Thursday after reports out of China and the U.S. both pointed to a slowdown in manufacturing activity. As they fill fewer orders, factories use less energy, and that cuts into petroleum demand.
China's oil demand rose less than one per cent in May, the second-smallest increase this year, noted Platts, the energy-information arm of McGraw-Hill Cos.
Analysts said investors are also disappointed that the U.S. Federal Reserve didn't announce more aggressive moves to stimulate the economy after its meeting this week. The Fed will extend an existing program to lower long-term interest rates, but it doesn't plan to pump more money into the economy as it's done before.
The Fed ended the meeting with a dour outlook for the U.S. economy, cutting its forecast for economic growth and saying that the unemployment rate won't fall much more the rest of the year.
"I'm not expecting any better economic news for quite some time," independent petroleum analyst Andrew Lipow said.
The gloomy forecast is putting more pressure on the price of oil, which has fallen nearly $32 since its high of $109.77 on February 24. Already, the price has been pushed lower by easing tensions over Iran's nuclear program.
Meanwhile, natural gas prices jumped more than three per cent after the U.S. government said that the country's supplies didn't grow as much as expected last week. The Energy Information Administration reported that the U.S. was holding more than three trillion cubic feet of gas in storage facilities. That's more than 27 per cent higher than average for this time of year, but a little less than what analysts expected.
Natural gas futures rose by 6.5 cents to end at US$2.582 per 1,000 cubic feet in New York.
In other energy futures trading, heating oil lost 6.21 cents to end at $2.5253 per gallon, while wholesale gasoline lost 4.01 cents to finish at $2.5501 per gallon.
Brent crude, which helps set the price of oil imported into the U.S., fell by $3.46 to end the day at $89.23 per barrel in London.
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