Oil prices drop amid weak U.S., Europe demand

(AP) Oil fell to near $97 a barrel Tuesday, extending nearly a week of losses as signs of sluggish economic growth in the U.S. and Europe foreshadowed tepid demand for crude.

By early afternoon in Europe, benchmark oil for June delivery was down 87 cents to $97.07 a barrel in electronic trading on the New York Mercantile Exchange. The contract settled down 55 cents at $97.94 in New York on Monday after trading as low as $95.34 per barrel - its cheapest level this year.

In London, Brent crude was down 93 cents at $112.23 per barrel on the ICE Futures exchange.

Crude has dropped from $106 last week as indicators from major developed economies show they continue to struggle. Last week, the U.S. said factory orders fell in March while the economy added fewer jobs than expected in April. Spain said its economy slipped into recession last quarter as the unemployment rate reached 24 percent.

"While it is easy to malign the European recovery, the latest round of U.S. macroeconomic data is troubling in itself," energy trader and consultant The Schork Group said in a report.

If the fall in oil prices continues, the cost of crude products such as gasoline should also drop, providing a potential boost for consumer spending.

"The U.S. economy has shown it's incapable of maintaining growth levels when energy prices surge, so we expect growth to remain weak in the midterm and the long-term, unless the current sell-off holds," Schork said.

Data on U.S. crude inventories due for release later Tuesday will provide more information about the strength of demand for oil. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., expect the American Petroleum Institute to report that crude supplies rose 2.2 million barrels last week, while gasoline stocks are seen falling 600,000 barrels.

"Crude supplies have been generally rising, with increases from Iraq, Libya and the U.S.," said Lawrence Eagles, an oil analyst with J.P. Morgan.

The ample supplies are expected to keep a lid on oil prices, with a return to levels above $105 as before the current sell-off "unlikely" in the near term, said a report from Commerzbank in Frankfurt.

In other energy trading, heating oil was down 0.44 cent at $2.9770 per gallon and gasoline futures fell 0.51 cent to $2.9690 per gallon. Natural gas lost 1.2 cents at $2.324 per 1,000 cubic feet.