Oil falls to near $83 on global slowdown fears

Oil prices plunged to near $83 a barrel Today in Asia, extending losses from the previous session after the U.S. central bank warned that already weak economic growth could deteriorate further.

Benchmark oil for November delivery was down $2.52 at $83.40 at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. Crude dropped $1.00 to settle at $85.92 on Wednesday.

In London, Brent crude for November delivery was down $2.31 at $108.05 on the ICE Futures exchange.

Federal Reserve Chairman Ben Bernanke said Wednesday at the end of a two-day policy meeting that there were "significant downside risks" to the Fed's economic forecasts, and highlighted a weak labor market and high unemployment rate.

The Fed also sought to lower lending rates and spur economic growth with a $400 billion program to sell short-term Treasury bills and buy long-term debt — dubbed "operation twist" — but analysts said it falls short of the $600 billion bond-buying program that ended this year. Most short-term rates are already near zero percent, blunting the possible benefits of any decline in long-term interest rates.

"We expect it to have only a limited downward impact on longer-term interest rates and the impact on the wider economy will be even more modest," Captial Economics said in a report. "The cost of borrowing simply isn't the problem."

Plunging global equities also weighed on oil prices since traders often look to stocks as a barometer of overall investor sentiment. Dow Jones industrial average fell 2.5 percent Wednesday and Asian stock markets were down Thursday.

In other Nymex trading for November contracts, heating oil fell 5.8 cents at $2.89 per gallon and gasoline futures slid 6.4 cents to $2.59 per gallon. Natural gas for October delivery was steady at $3.73 per 1,000 cubic feet.

Oil prices fell below $100 a barrel

Oil prices fell below the psychologically significant $100 a barrel level for the first time in six months on Today as the sell-off in commodities markets gathered pace amid concerns about a slowdown in global economic growth.

The selling intensified after China said on Today, the country’s inflation had surged to 6.5 per cent, potentially preventing the central bank from cutting interest rates.

In early trade in London, ICE September Brent, the global benchmark, fell by more $5 to a session low of $98.74 a barrel, its lowest level since early February. It later recovered above the $100 a barrel level amid hopes that the US central bank would launch another round of monetary easing.

Brent oil prices have fallen more than $10 a barrel in just two days. The correction looked set to accelerate as investors who follow chart patterns sell after Brent prices fell through the key 200-day moving average.

The sharp correction is bringing back the memory of the 2008 global financial crisis, when prices dropped from a record high of nearly $150 to a low of less than $40 in six months after oil demand collapsed. But analysts say that the supply and demand fundamentals are much tighter this time than three years ago, in part due to the civil war in Libya.

The drop in oil prices comes against the backdrop of sharply falling raw materials prices. The benchmark Reuters-Jefferies CRB index, a basket of commodities, hit an eight-month low on Monday after falling by 2.8 per cent to 317 points. The index has fallen 14.3 per cent since a peak in April.

But Jeff Currie, head of commodities research at Goldman Sachs in London, was more positive, telling clients in a note that, although risk to the bank’s “constructive commodity views” had risen, he maintained an “overweight” recommendation on commodities relative to other asset classes.

Some analysts believe that the sell-off in oil markets could peter out soon. Whiles Harry Tchilinguirian, head of commodity market strategy at BNP Paribas said,the oil market has been affected by the “risk-on, risk-off” trend in the markets, the overall fundamentals of supply and demand have not changed.