Oil plunges more than 6 per cent, US$81.31 close lowest of the year

Oil plunged to its lowest price of the year Monday on concerns about the slowing global economy and future demand for oil and gas.

Benchmark West Texas Intermediate crude fell $5.57, or 6.4 per cent, to settle at US$81.31 a barrel on the New York Mercantile Exchange. That is the lowest settlement price of the year for crude, but it's still higher than the US$71.63 a barrel it closed at on Aug. 24, 2010, its low of the last 12 months.

Brent crude, used to price many international varieties of crude, fell $5.63, or 5.2 per cent, to settle at US$103.74 a barrel Monday on the ICE Futures exchange in London.

Anxious traders pulled money out of oil and stocks and bought assets considered to be safer during times of economic uncertainty, such as U.S. Treasurys and gold. Gold topped $1,700 an ounce for the first time, while stocks were down more than five per cent in New York.

Standard & Poor's on Friday cut the Triple-A credit rating for long-term U.S. government debt. Monday's trading session was the first chance traders and investors had to react, and many of them sold off.

In the past two weeks, oil prices have dropped nearly US$16 a barrel. Analysts think oil remain volatile this week as traders look for some clarity about the direction of the world economy and demand for oil. The U.S. Department of Energy is scheduled to release its Short-term Energy Outlook on Tuesday, and OPEC is expected to issue an updated forecast for global oil consumption as well.

Traders also are concerned about debt problems in Europe, where the European Central Bank said it will intervene to prop up the sagging economies of Spain and Italy.

Some analysts believe that global oil demand, particularly in emerging markets like China, will continue to support prices. The share of global oil demand in emerging markets has risen from 44 per cent in 2008 to 48 per cent this year, Barclays Capital said in a report for clients. China's share of global oil demand has increased more than two per cent in the same period.

Goldman Sachs analysts also believe oil prices will rise next year. They told clients in a note published Friday that the risk of a U.S. recession has risen, but their revised U.S. economic outlook remains consistent with a recovery at a slower pace, "which is typical following a housing bust."

In addition, Goldman said the outlook for economic growth in China and other emerging markets is positive.

U.S. gasoline futures have fallen between 35 cents and 40 cents a U.S. gallon (3.79 litres) in the last two weeks. That will translate into a savings at the pump of about US$140 million to US$160 million a day for U.S. motorists, according to Cameron Hanover energy consultancy.

In other Nymex trading for September contracts, heating oil fell 14 cents to settle at US$2.8017 a U.S. gallon, gasoline futures dropped 11.36 cents to settle at US$2.6916 a gallon and natural gas rose 0.6 of a cent to settle at US$3.935 per 1,000 cubic feet.