Oil drops on bleak outlook for Europe economy

THE price of oil fell yesterday after the European Central Bank predicted a bleak year ahead for the region's economy but stopped short of offering new measures to boost growth

Benchmark oil fell US$1.62, or 1.8 percent, to finish at US$86.26 per barrel in New York. Brent crude, which is used to price international varieties of oil, dropped US$1.78, or 1.6 percent, to end at US$107.03 per barrel in London.

The ECB left its key interest rate unchanged at a record low, and the bank cut its 2013 economic forecast for the region to negative from positive.

The 17 countries that use the euro currency are in a recession after a massive debt crisis followed by government spending cuts and tax hikes that have hurt growth.

Price Futures Group analyst Phil Flynn said Draghi's comments "kind of shocked the market." Stimulus measures that have been put in place by central banks in several countries were intended to help economic growth. Traders embraced them with expectations that demand for energy products would strengthen.

Draghi's statement overshadowed a positive report on US unemployment claims. The Labor Department said applications for benefits fell slightly last week to a level consistent with modest hiring.

In other energy futures trading on the New York Mercantile Exchange:

- Heating oil fell 4.75 cents to finish at US$2.9432 per gallon.

- Wholesale gasoline fell 4.09 cents to finish at US$2.5969 per gallon.

- Natural gas fell 3.4 cents to finish at US$3.666 per 1,000 cubic feet.

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