Monday January 12, 12:38 PM
Oil prices shed $2 on economic downturn fears
LONDON (AFP) - Oil prices dropped some two dollars on Monday on concerns that a deepening global economic downturn could spark a slump in demand for energy, analysts said.
The market was also weighed down by news of a possible resolution to the ongoing Russia-Ukraine gas supply crisis, they added.
Traders also tracked developments in the Middle East, where Israeli infantry units clashed with Hamas fighters across Gaza even as talks in Egypt tried to end the 17-day-old war.
New York's main contract, light sweet crude for delivery in February, dropped 2.17 dollars to 38.66 dollars per barrel on the New York Mercantile Exchange (NYMEX) on Monday.
Brent North Sea crude for February shed 1.85 dollars to 42.57 dollars on London's InterContinental Exchange.
Prices dived 16 percent last week on concerns that a US stockpile buildup reflected how the global economic slump is further dampening demand, traders said.
"Downward pressure stemmed from continued concerns over weakening demand and a significant increase in US inventories," said analysts at energy consultancy John Hall Associates on Monday.
"Concerns over weakening demand should predominate this week. leading to expectations that prices are likely to average between 37-42 dollars a barrel.
"In the short term, the focus is likely to return to falling demand as a consequence of the deepening global recession."
Sentiment took a big hit after a US jobs data report released Friday showed unemployment jumped to a 16-year high of 7.2 percent, with 524,000 jobs lost in December, capping a loss of 2.6 million for 2008 in the worst performance since 1945.
The acceleration of job losses suggested a vicious downward cycle for the world's biggest economy, analysts said.
The US is the world's leading energy user and analysts fear oil demand could be affected badly if the American economy remains stuck in a recession.
The market tumbled last week after earlier bouncing above 50 dollars on the back of jitters over the Russia-Ukraine crisis and ongoing unrest in Gaza.
The Ukraine government on Monday signed a new version of a deal to reopen Russian gas tap to Western Europe after being accused of changing an earlier accord, Russian energy giant Gazprom said.
With hundreds of thousands of people across Europe shivering through a bitterly cold winter, Gazprom said Ukraine had approved an accord on gas flows after Moscow had accused Kiev of invalidating the accord by adding new conditions.
"There should be a resolution between Russia and Ukraine over gas supplies this week," said analysts at John Hall Associates.
Meanwhile, Israeli troops battled Hamas militants across the Gaza Strip, with the most violent clashes reported in the north of the Palestinian enclave, battered by a war that has claimed some 900 lives.
At least six people were reported killed as a result of Monday's clashes, medics said.
Hamas and its allies remained defiant in the face of the assault, firing three rockets and mortars that crashed inside Israel without causing injuries, the army said.
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