Oil posted its biggest one-day drop in three months as investors worried about another recession.
Crude prices tumbled nearly 6 percent Thursday, outpacing a broad sell-off on Wall Street, where major indexes were down more than 4 percent.
Benchmark West Texas Intermediate crude for September delivery fell $5.30, or 5.8 percent, to settle at $86.63 per barrel on the New York Mercantile Exchange. That's the steepest drop since oil took an 8.7 percent tumble on May 5. Oil dropped as low as $86.04 per barrel earlier in the day, its lowest level since February.
Brent crude, used to price many international oil varieties, lost $5.98, or 5.3 percent, to settle at $107.25 per barrel on the ICE Futures exchange in London.
This should be good news for U.S. motorists. If oil holds at these lower levels, the drop could be felt within days at gas pumps across America. Fred Rozell, retail pricing director at Oil Price Information Service, said the recent slide in oil could cut between 20 to 35 cents from a gallon of regular over the next month. The national average is currently $3.703 per gallon (3.8 liters).
"You could see some sizable declines at the pump," Rozell said.
Earlier in the summer, investors were still holding on to the notion that fuel prices would rise as economies in the U.S. and Europe recovered from the Great Recession. Even a pullback in U.S. gasoline consumption couldn't push oil back from around $100 per barrel.
A string of disappointing reports on manufacturing and economic growth during the past week, combined with lawmakers squabbling over spending and debt in the U.S. and Europe, has everyone in the mood to sell oil, Rozell said.
Oil has declined for seven straight trading days. It's down 13 percent since July 26. Prices dropped as the government reported sluggish, 1.3 percent GDP growth in the second quarter, and reports said that manufacturing activity was cooling off in the U.S. and China.
On Thursday a rising dollar also helped pull oil lower. Oil, which is priced in dollars, tends to fall as the dollar rises and makes crude more expensive for investors holding foreign money.
"We've come down so far, so fast, that it seems investors are just looking for an excuse to sell," independent analyst Jim Ritterbusch said.
The dollar rose Thursday after Japan and Switzerland moved to weaken their currencies. The yen and Swiss franc surged recently as investors worried about slowing economies in Europe and the U.S., and sought so-called "safe haven" currencies. As the currencies of those countries strengthened, their goods became more expensive in overseas markets. Switzerland's central bank took steps Wednesday to curb the value of the franc, while the Japanese did the same for the yen on Thursday.
Energy prices fell across the board on Thursday. The Energy Department's Energy Information Administration said in its weekly report that natural gas held in underground storage grew by 44 billion cubic feet. Analysts had expected an increase of between 34 billion and 38 billion cubic feet. Natural gas plunged after the report, losing nearly 15 cents to settle at $3.941 per 1,000 cubic feet.
In other Nymex trading for September contracts, heating oil fell 12.5 cents to settle at $2.8939 per gallon and gasoline futures gave up 19.41 cents to settle at $2.7372 per gallon. - AP