Oil in N.Y. Falls on Skepticism Rate Cut Will Bolster Economy

(Bloomberg) -- Crude oil dropped to a six-week low in New York on skepticism that an emergency interest rate reduction by the U.S. Federal Reserve will prevent the world's biggest energy consuming country from falling into recession.

The overnight lending rate was lowered to 3.5 percent from 4.25 percent, the Federal Open Market Committee said in a statement in Washington. Oil in New York has declined 11 percent since touching a record $100.09 a barrel on Jan. 3 on speculation demand will drop as global economies slow.

``Recessionary fears have spread from the U.S. to overseas markets in a pronounced fashion,'' said Eric Wittenauer, an analyst at A.G. Edwards & Sons Inc. in St. Louis. ``The Fed move has given us some support but it's not enough to reverse the downward course of the energy market.''

Crude oil for February delivery fell $1.26, or 1.4 percent, to $89.31 a barrel at 11:45 a.m. on the New York Mercantile Exchange. Prices touched $86.11 before the Fed announcement, the lowest since Dec. 6. Prices are up 75 percent from a year ago.

There was no floor trading in New York yesterday because of the Martin Luther King Day holiday. Yesterday's electronic trades will apply toward today's close.

Brent crude for March settlement rose 26 cents, or 0.3 percent, to $87.77 a barrel on London's ICE Futures Europe exchange. Brent touched $85 today, the lowest since Oct. 25. Futures dropped $1.72, or 1.9 percent, yesterday.

Oil would slide to ``the low $80s'' if all outstanding speculative contracts were sold, analysts at Goldman Sachs Group Inc. including London-based Jeffrey Currie, said in a report today. Investment funds have sold oil contracts amounting to as much as 100 million barrels in the past two weeks, Goldman said.

 

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