Oil resumes slide as on fears that weak US economy will drive down demand

Source: Agencies  |   2008-10-31  |     ONLINE EDITION

THE latest economic report to suggest the United States has fallen into recession pushed oil prices lower on a strengthening conviction that the rest of the globe will follow.

Governments, businesses and consumers cut back on energy consumption during slow economic times and there is ample evidence to suggest that they already have.

Gasoline costs 30 percent less per gallon than it did just one month ago as thousands of people have lost jobs, stopped commuting, or are instead using mass transit and conserving money.

Light, sweet crude for December delivery fell US$1.54 to settle at US$65.96 a barrel on the New York Mercantile Exchange. Oil prices have fallen 55 percent since peaking above US$147 a barrel in mid-July.

The broadest barometer of the nation's economic health, the gross domestic product, shrank at a 0.3 percent annual rate in the July-September quarter, the Commerce Department reported yesterday. It marked the worst showing since the economy contracted at a 1.4 percent pace in the third quarter of 2001, when the nation was suffering through its last recession.

The declining GDP number means demand for gasoline is dissolving, analysts said.

"We were smacked with the short-term reality that demand is just not going to be there," said Phil Flynn, an analyst at Alaron Trading Corp.

The deterioration reflected a sharp retrenchment by consumers, whose spending accounts for the largest chunk of national economic activity. Consumers ratcheted back their spending at a 3.1 percent pace in the third quarter, the most since the second quarter of 1980, when the country was in the grip of recession.

"If the consumers are struggling that bad, the outlook for gasoline demand is not that strong," Flynn said.