Oil prices drop as European debt worries mount

NEW YORK (AP) ? Oil prices were lower on Wednesday following a broad sell-off on Wall Street that was stoked by fears that Europe would be overwhelmed by a mountain of debt.

Benchmark crude fell $1.06 to end the day at $95.74 per barrel in New York, while Brent crude lost $2.69 to finish at $112.31 in London.

The Dow Jones industrial average, the S&P 500 and the Nasdaq stock indexes dropped more than 3.5 percent. Investors sold off as Italy's borrowing costs soared and talks collapsed in Greece on forming a new government. Both countries are struggling to pay off huge government debts and implement drastic spending cuts.

The eurozone is expected to use less oil next year as countries cut back on spending and economies slow. If governments default, some analysts worry that widespread bank failures could reach across the Atlantic and slow down spending in the U.S. as well.

"If Europe falls apart, it heightens the likelihood of a recession across the globe," independent oil analyst Jim Ritterbusch said.

In the U.S. motorists are paying record prices for gasoline this year. At $3.43 per gallon, the national average on Wednesday is 55.5 cents less than the peak price of almost $4 a gallon in May. But pump prices now are still 79 cents higher than they were last year.

Americans are spending 8.4 percent of their monthly income on gasoline this year, surpassing the 2008 record of 7.9 percent, according to a report by the Oil Price Information Service. OPIS, which analyzed Energy Department and U.S. Census data for the report, said U.S. households are spending an average of $50 more per month to fill up.

"Those costs could go up to 10 percent" of monthly household income by next year, said Tom Kloza, OPIS's chief oil analyst. "That's going to put a lot of pressure on people, especially those that are already living paycheck-to-paycheck."

For more than four months, Americans have been buying less gasoline compared to last year, and that trend is expected to continue. On Wednesday the Energy Departments' Energy Information Administration said gasoline demand last week was down 5.6 percent from the same week a year ago.

While gasoline demand in the U.S. is weak, analysts said the data on diesel demand shows that farmers, shipping companies and other major U.S. industries are burning more fuel ? evidence that the economy is slowly building up steam. Distillates, a category that includes diesel and fuel oil, fell by 4.2 percent last week as demand rose nearly 4 percent from a year ago, according to the EIA. Supplies are expected to shrink further as temperatures drop and home owners along the East Coast use more fuel oil for heat.

In other energy trading Wednesday, heating oil fell 1.75 cents to end at $3.0986 per gallon, and gasoline futures fell 6.22 cents to finish at $2.6442 per gallon. Natural gas lost 9 cents to end at $3.652 per 1,000 cubic feet.

Associated Press

Source: http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2011-11-09-Oil%20Prices/id-08bfe7a7e9fb45f5bdebfcf700b31838

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