Oil prices tumble on dim US, British data

January 26, 2011 | 09:03

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Oil prices fell Tuesday after disappointing economic releases in the United States and Britain stirred fears of slowing energy demand.

New York's main contract, light sweet crude for March delivery, fell $1.68 to $86.19 a barrel.

The contract has skidded lower for six straight sessions and lost roughly six percent of its value.

Earlier Tuesday, it dropped to $86.12, the lowest level since early December.

London's Brent North Sea crude for March dropped $1.36 to settle at $95.25 a barrel.

"It is surprising that we moved down so far, so fast," said Matt Smith at Summit Energy.

Smith said the market was shaken by official data showing the British economy shrank unexpectedly, by 0.5 per cent, in the fourth quarter of 2010.

It was the first contraction since the third quarter of 2009 and surprised most analysts, who had forecast a 0.4 per cent gross domestic product growth.

"The UK GDP data was the telling point for the day," Smith said.

A wave of risk aversion swept the market, the analyst said.

The market also digested more grim news about the housing crisis in the United States, a key weight on the recovery from recession in the world's largest oil consumer.

US home prices dropped in November for the fifth straight month, according to the Standard & Poor's/Case-Shiller index released Tuesday.

"Going forward, weak demand, foreclosures, and a glut of homes for sale should translate into another 5.0-10 per cent drop in the Case-Shiller aggregate indexes," said Patrick Newport at IHS Global Insight.

AFP

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