HOUSTON - A new batch of lousy economic news dragged oil prices down nearly seven per cent Tuesday, as signs from across the globe pointed to a prolonged and painful recession.
Light, sweet crude for March delivery fell US$2.58 to settle at $34.93 a barrel on the New York Mercantile Exchange.
A number of other commodities fell hard too as people sought less volatile investments.
"The recession is getting worse in their eyes," said Phil Flynn, an analyst at Alaron Trading Corp. "We've gone from a year when we didn't think we were going to have enough of any commodity to a situation where we're going to end the year with oversupply."
And for the first time in three weeks, retail gasoline prices fell.
Prices at the pump slipped 0.5 cents to $1.960 a gallon, according to auto club AAA, Oil Price Information Service and Wright Express. Prices are still about 12 cents higher than a month ago, but remain a $1.054 lower than one year ago at this time.
In Canada, the price of gas averaged 88.7 cents Canadian per litre, up from about 82.3 cents per litre a month ago, according to price-watching website Gasbuddy.com.
Retail gas prices have continued to rise as refiners, trying to match falling demand, cut back on production.
Energy analysts at Raymond James & Associates said broader market concerns are depressing crude prices, even as President Barack Obama prepared to sign into law the US$787-billion stimulus package Tuesday.
"The market doesn't seem to think that this plan is going to solve the economic problems in the short term," Raymond James said in a note to clients Tuesday.
Stocks took a nose dive in trading Tuesday, as Wall Street reacted to unsettling news from the automotive and retail fronts, as well as slumping markets from Asia to Europe.
"The economic and inventory data paint a bleak picture for oil demand," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore. "Since the beginning of the year, the outlook has worsened."
Oil prices have become extraordinarily volatile because the March contract expires Friday. That means anyone in possession of a contract must find a place to store the oil in a few weeks.
That has become more difficult each week, with U.S. crude storage hitting 82-week highs, yet some traders say there is no rational for the volatility of this market.
Crude prices fell another 11 per cent last week and swung wildly throughout the trading day.
"A rise in volatility is normal, but that said, what we have witnessed over the last month (in the Nymex) market is not reasonable and it is not reflective of underlying fundamentals," wrote analyst and trader Stephen Schork. "After all, the fundamentals cannot move that fast."
Leaders of the Organization of Petroleum Exporting Countries have said they may go beyond 4.2 million barrels a day in production cuts to prop up prices when they meet next month.
Hussain al-Shahristani, Iraq's oil minister, said Tuesday that current crude prices don't provide "sufficient incentives" for investors to put money into new projects. That, he warned, could set the stage for a "big shortage" in world supply once the global economy recovers.
In other Nymex trading, gasoline futures tumbled 9.45 cents to settle at $1.1118 a gallon. Heating oil fell 11.36 cents to settle at $1.1864 a gallon, while natural gas for March delivery slipped 24.9 cents to settle at $4.203 per 1,000 cubic feet.
In London, the March Brent contract fell $2.25 to settle at $41.03 on the ICE Futures exchange.
