Oil falls below $79 in European trade amid mixed signals about the global economic recovery

Oil falls below $79 amid mixed economic signs

Oil prices slipped below $79 a barrel Thursday amid mixed signals over the strength of the global economic recovery.

By early afternoon in Europe, benchmark crude for December delivery was down 68 cents to $78.90 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 44 cents to settle at $79.58 on Wednesday.

“The resistance to oil sustaining above the $80 level is very strong. There are signs of economic recovery but so far, the signals have been mixed and the sustainability of the recovery is uncertain,” said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

Crude prices have zigzagged around $79 a barrel for more than a month.

“While economic news has been mostly positive the poor fundamentals of the oil market are limiting the upside,” said analysts at JBC Energy in Vienna.

The Paris-based Organization for Economic Cooperation and Development on Thursday raised its forecasts for growth in the world’s developed economies in 2010, but said recovery would remain fragile.

“The recovery is tepid because economic activity is being held back by households and businesses repairing their finances and reducing their debts,” the OECD said, adding that the jobless rate likely would peak in the first half of 2010 in the United States, while unemployment in the countries using the euro could start to fall only in 2011.

Earlier, the U.S. Energy Information Administration reported that the country’s stockpile of crude oil fell by 900,000 barrels last week. But the drop was hardly a sign of a recovering economy. American petroleum consumption has fallen to the lowest level since July 17, and oil companies are importing much less oil as they scale back their refining operations.

The Commerce Department separately said construction of homes and apartments fell 10.6 percent in October to an annual rate of 529,000 — well below the pace of 600,000 that economists expected.

Despite weak demand from consumers and doubts over the economic recovery, Shum said crude prices are expected to remain within the low $70 and high $80 range.

A weak dollar continued to be a boost for the crude price as investors seeking a dollar hedge and better returns will continue to buy commodities such as oil and gold, he said.

The price of crude, which is traded in the U.S. currency, tend to rise as the dollar falls and investors holding strong international currencies get more buying power.

On Thursday, the euro fell to $1.4844 in European trade, down from the $1.4940 in late Wednesday in New York, the British pound fell to $1.6621 from $1.6718 and the dollar fell to 88.90 Japanese yen from 89.48 yen.

A report on energy markets by Sucden Research in London said that milder weather than usual for this time of year in the United Stated — which could lead to less use of heating oil, for example — was also a cause of concern regarding crude oil demand levels.

In other Nymex trading, heating oil fell 1.36 cents to $2.0350 a gallon. Gasoline for December delivery was down 1.24 cents to $1.9990 a gallon. Natural gas for December delivery fell 5.8 cents to $4.196 per 1,000 cubic feet.

In London, Brent crude for January delivery dropped 77 cents to $78.70 on the ICE Futures exchange.

Associated Press writer Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.