Oil drops near 6 percent on slumping demand

Oil fell nearly 6 percent on Monday as further indicators of falling demand linked to a potential recession offset OPEC plans to reign in output.

U.S. crude settled down $3.90 at $63.91 a barrel, after October saw the steepest monthly price decline ever for oil as global demand slowed. London Brent crude dropped $4.84 to settle at $60.48 a barrel.

By Edward McAllister, Reuters

Oil hit a record $147.27 a barrel in mid-July but has since more than halved as poor economic data added to pressure from weak demand reports in the United States and other key consumer nations.

Oil rigs extract petroleum in Culver City, Los Angeles, April ... 
Oil rigs extract petroleum in Culver City, Los Angeles, April 2008. World oil prices slipped on Monday as traders took profits after a pre-weekend rally, and tracked concerns about the impact of a global recession on energy demand, analysts said.(AFP/Getty Images/File/David McNew)

“The most devastating blow for crude oil today is data showing that U.S. manufacturing activity in October fell to the lowest level in 26 years, which means more worries for oil demand,” said Phil Flynn, an analyst at Alaron Trading, in Chicago.

“Manufacturing used to be a great forward indicator for oil demand, but if the manufacturing sector is down, it will be a struggle to keep oil demand up,” he added.

U.S. factory activity — a barometer for future oil demand — contracted sharply in October, falling to its lowest in 26 years as the financial crisis racked the world’s largest economy.

The Institute for Supply Management said its index of national factory activity fell to 38.9 in October from 43.5 in September. A reading below 40 is exceptionally weak.

BP (BP.L) Chief Executive Tony Hayward estimated U.S. demand has dropped 2 million barrels per day on the year over the last four weeks.

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