Oil Prices Tumble Amid Economic Worries

Stock Selloff Underscores Investor Uncertainty About Effect Of Sky-High Prices

(AP)  Oil prices plunged Tuesday as worries about America's economic health shot to the fore and OPEC warned that high gasoline prices are likely to erode global demand for crude.

In the third big sell-off in just over a week, light, sweet crude plunged $6.44, or 4.4 percent, to settle at $138.74 on the New York Mercantile Exchange in an extremely volatile session. Prices at one point dropped more than $10 a barrel from the day's high.

The turnaround may not signal a lasting shift in sentiment — prices have swung violently in recent days as they flirted with record highs. But it does underscore investor uncertainty about the sustainability of sky-high prices and potentially long-lasting effects on the broader economy.

"They're slamming this pretty good. But remember, these (big) moves are becoming a little more commonplace," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

Earlier Tuesday, the contract rose as high as $146.73 and fell as low as $135.92. Prices hit a record $147.27 Friday.

Federal Reserve Chairman Ben Bernanke told Congress that "numerous difficulties" are racking the economy of the world's largest energy consumer, and warned that rising prices for energy and food are elevating the risks of inflation.

At the same time, the Labor Department reported that wholesale inflation jumped by 1.8 percent last month, a larger-than-expected gain. Over the past year, wholesale prices have risen 9.2 percent, the most since 1981.

"Traders get spooked and simply sell positions," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "The threat of recession, at some point the market's going to plug that in."

Bernanke's sobering comments helped drive stocks down sharply, although they later recovered as oil prices fell.

Lingering concerns about the health of the financial sector continued to weigh on banking stocks, however, reminding energy traders that oil prices are not immune to troubles elsewhere in the economy.

"Since investment banks have been increasing their ... exposure to commodities, their current distress can have (a) significant impact on oil prices if they are forced to liquidate commodity positions in a run for cash," Olivier Jakob, an analyst at Petromatrix in Switzerland, said in a research note.

The latest monthly market report from the Organization of Petroleum Exporting Countries gave traders further reason to unload oil.

The cartel predicted world oil demand will rise by 900,000 barrels a day in 2009, or 100,000 barrels per day less than this year. OPEC blamed the slowdown on a slumping economy and high gas prices in richer industrialized countries.

Meanwhile, a five-day strike by Brazilian oil workers that began early Monday had less effect on output than feared. The labor action cut production of government-run Petroleo Brasileiro SA, or Petrobras, by only about 4 percent by Monday evening. Petrobras produces about 1.6 million barrels of oil a day.

"We are not making a big case of the strike in Brazil as it is well defined in time, hence carries little un-priced risk. Furthermore the output loss estimates have been continuously revised down," Jakob said.

The dollar fell to a new low against the euro, but that did little to halt oil's fall. A weaker dollar has been a major factor driving prices sharply higher in recent months, enticing investors to pump money into oil as a hedge against inflation and making crude cheaper for overseas buyers.

In Washington, President George W. Bush continued to press the Democratic-run Congress to open up new areas to offshore oil drilling. The president lifted a ban on Continental Shelf drilling Monday, but a Congressional prohibition remains.

"I readily concede it won't produce a barrel of oil tomorrow, but it will reverse the psychology," Bush said at his first White House news conference since April.

Retail gas prices in the U.S. remained at a record near $4.11 a gallon ($1.08 a liter), according to auto club AAA, the Oil Price Information Service and Wright Express. In other parts of the world, where gasoline is heavily taxed by states, motorists pay as much as $9 a gallon ($2.37 a liter) — or even more.

General Motors Corp., the leading U.S. automaker, said it is assuming oil prices will hover between $130 to $150 a barrel next year. The company made the prediction as it laid out plans to slash jobs and truck production, suspend its dividend and borrow up to $3 billion as it grapples with an ailing U.S. economy and record high fuel prices.

In other Nymex trading, heating oil futures fell more than 16 cents to $3.9035 a gallon, while gasoline futures tumbled more than 20 cents to $3.3543 a gallon. Natural gas dropped almost 56 cents to $11.34 per 1,000 cubic feet.

[keith_dcosta]

It was a wild idea, and people laughed at me, but watching CBS early morning news, i was glad to see the oil prices down. My idea was to ask the countries of the world to refrain from buying gasoline once a month and make that sacrifice walking or taking the bus to work or school. Looks like it''s working. Keep it up.

[dougmsbbs]

Another thought: A large part of this problem is MADE by the feds. Oil is sold worldwide in American dollars. The week dollar is making this sooo much worse. Think of it like this: If you were an oil producer selling oil, and taking in dollars for it, when what you are paid is worth less every year, your going to want more of it to come out even. Chart the rise of oil with the fall of the dollar. It''s almost a mirror image.
And you want to give these people even more power? Stone age, here we come...

[dougmsbbs]

Folks, lets not forget a public agency is not a producer of anything, all they can do is consume. All this talk of nationalizing would do is add another, very inefficent, layer to whats already there. Net result: Higher cost. If they set the price of gas, the difference will be made up in higher taxes. You can''t get out of the trap and still hold the cheese. Anyway you try it, it''s gonna hurt...

[libh8er]

LOL....the lib media kills me.

two months ago....
''Oil prices rise amid global turmoil''

now....
''Oil Prices Tumble Amid Economic Worries''

No news is good news if a lib isn''t predident, right CBS? You people are pathetic

[beehive21-2009]

You people in Big Oil,do not fool anyone ,you shall pay for what you''ve done the American people.The damage is done ,remember it when you count those Billions in profits, blood money,you greedy fools.

[rosieod4prez]

Don''t you just love how CBS gives credit where it is due ? (NOT!!!)

http://tinyurl.com/6jtnx5

[whiskyrocker]

Things are going to get a lot worse.Hang on

[whitemale08]

nationalised you cannot possibly think it could ever go back to the old days..never happen


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Posted by lovesamerica at 05:43 PM : Jul 15, 2008-

I hear you bro but it''s going to become more obvious to you because we have a monetary system or Federal Reserve System where money unfortunately has an intrinsic value and humans do not.

Hugo Chavez came into power to nationalize everything after they tried free markets with President Rafael Caldera to solve Long Term Capital.

While Venezuela still has problems, its still alot better for the avereage people. Gas is only .18 cents

[libsluv2spit]

Posted by libsluv2spit at 04:49 PM : Jul 15, 2008-

You''''re both right.

Nationalize oil untl we get the alternative.


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Posted by whitemale08 at 05:19 PM : Jul 15, 2008
+ report abuse
**************

I would not give that power to the federal govt EVEN AT A TEMPORARY level..it might take an ''act of congress'' to reverse it..

however, what we need to do is CONSERVE..CONSERVE...CONSERVE..CONSERVE..ride the bike take the bus..carpool..WALK!! and at the same time we need to put a lot of heat on R&D on alternative source of energy..WE HAVE THE TECHNOLOGY ALL WE NEED TO DO IS UNRESTRICT IT.

[lovesamerica]

People don''t want the government running their lives now! and once everything was nationalised you cannot possibly think it could ever go back to the old days..never happen

[whitemale08]

Posted by earth56 at 05:29 PM : Jul 15, 2008-

What I''m saying is nationalize everything...banks, oil, health care, all of the vital services and precios commodities to stabalize the economy.

Because we are in a state of crisis and emergency.

Trust me I lived in a 3rd world country right after Long Term Capital blew out the banks and the economy this no different.

Once you stabalize and get our economy off oil and private hedge funds, cartels, and monopolies then we will be safe to go back to free markets.

[whitemale08]

meaning..imagine a hospital run like the DMV..


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Posted by libsluv2spit at 04:49 PM : Jul 15, 2008-

You''re both right.

Nationalize oil untl we get the alternative.

[lovesamerica]

Ok, oil prices dropped today as the trend appears to be that means it will be at its highest price in a day or two

[pollroller1]

Two words, Honda Fit.

[libsluv2spit]

Oil supply is too important of an issue to leave in the hands of greedy, arrogant, fascist, conservative and GOP supporting corporations. Time to nationalize along with health care.


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Posted by noloyalisti at 04:20 PM : Jul 15, 2008
+ report abuse

***********

WHAT YOU are proposing is a continued dependency on oil..funny enough the very same people who are fast to call the govt or any party to the matter a FACIST are the same people who wants to ''own it'' and ''run it''..

meaning..imagine a hospital run like the DMV..

[libsluv2spit]

its amazing that those who chastize oil and efforts to get it are THE ONES WHO USUALLY DRIVES THE BIGGEST SUVS

[noloyalisti]

Oil supply is too important of an issue to leave in the hands of greedy, arrogant, fascist, conservative and GOP supporting corporations. Time to nationalize along with health care.

[whitemale08]

I demand that we switch to the Air Car!!!
www.theaircar.com

Compressed Air is near free and GM could turn itself around tonight if they announced that they were going to come out with the Air Car.

Come on guys!!!

I can care less about oil prices dropping here or there. It''s like trickle-down drops of savings for consumers.

It''s stupid!!! All you Republicans have to do is just call your stupid patriotism pastors like Junkyard dog Sean Hannity and Rush and demand the Air Car!!!!

[randynason]

Too little, too late. This is what happens when a spoiled, ignorant child is in charge of a room full of speechless, unrealistic adults. Sadly, this is a deserved fate.

[daysrnumbrd]

That is why controls on speculation need to be controlled.....

Posted by navpro at 02:47 PM : Jul 15, 2008
.............

Regulation is taught (by the neo-cons) to be a bad thing.

But like the laws of the land, without them, there would be anarchy. What we have now is a near-anarchistic economy in America, and the elites are the only ones powerful enough to make, change, or eliminate the rules.