Oil plunges below $64 on fears recovery may lag

Oil prices plunged nearly $3 to below $64 a barrel Monday as dismal unemployment figures from the U.S. and Europe last week sparked investor doubts about any nascent economic recovery.

By midday in Europe, benchmark crude for August delivery fell $2.97 to $63.76 a barrel in electronic trading on the New York Mercantile Exchange. It last settled on Thursday at $66.73.

Trading was closed in the U.S. on Friday for the Independence Day holiday.

Oil has tumbled from an eight-month high above $73 a barrel last week after gloomy U.S. consumer confidence and jobs numbers fueled doubts about a rally that has doubled the price of crude since March.

“It’s not looking too pretty in terms of economic data,” said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. “The demand side fear is coming back into play.”

A Labor Department report last week showed the U.S. economy lost a larger-than-expected 467,000 jobs in June. The unemployment rate climbed to 9.5 percent, a 26-year high. Unemployment in the 16 countries that use the euro spiked to a 10-year high in May, also at 9.5 percent.

“More and more people are becoming convinced we won’t see a full-blown recovery any time soon,” Moltke-Leth said. He said he expects the oil price to soon test the $60 a barrel level.

“With economic news still gloomy, oil demand sluggish, stocks plentiful and no supply side disruption in sight, we could be on the verge of a short term downward price correction,” said KBC Market Services in London.

The dollar’s rise against other major currencies also weighed on oil prices, as investors who seek out commodities as a hedge against dollar weakness and inflation returned to the U.S. currency.

The euro was trading at $1.3905, down from $1.4001 late Friday in London, while the British pound fell to US$1.6111 from $1.6341.

Lending some support to prices was another attack on oil operations in Nigeria. Militants said on Sunday they attacked a Royal Dutch Shell oil facility in southern Nigeria, the latest sabotage in a campaign that has undermined output from Africa’s largest producer.

In other Nymex trading, gasoline for August delivery fell 5.83 cents to $1.7325 a gallon and heating oil slid 6.62 cents to $1.6354. Natural gas for August delivery plummeted 15.7 cents to $3.158 per 1,000 cubic feet.

In London, Brent prices dropped $1.72 to $63.89 a barrel on the ICE Futures exchange.