Oil drops to US$102/barrel

Oil tumbled nearly seven per cent Thursday amid new signs that demand for fuel in the United States is weakening.

A stronger dollar also contributed to the drop, analysts said.

Oil is down more than 10 per cent this week, joining other commodities like silver and cotton in retreat. This follows a month-long rally in commodities that was partly driven by lower US interest rates and a weak dollar.

Some analysts said the lack of any terrorist retaliation for the killing of Osama bin Laden also depressed oil prices.

At mid-afternoon, the benchmark West Texas Intermediate crude for June delivery gave up US$7.60 at US$101.66 per barrel on the New York Mercantile Exchange. That's the cheapest price for oil since March 10.

Brent crude fell US$7.18 to US$114.01 per barrel on the ICE Futures exchange in London.

Earlier in the week, industry and government surveys showed that Americans are buying less gas as pump prices rise.

On Thursday, the US said that the number of people applying for unemployment benefits reached the highest level in eight months. That should depress gasolene demand, analysts say, because large numbers of Americans drive to work.

"Commuters are the bedrock of gasolene demand," Cameron Hanover analyst Peter Beutel said. When people lose jobs, "you're killing the best part of that demand - the part that will always be there as long as someone has a job."

Falling oil prices haven't affected pump prices yet, however. A gallon of regular is more than a dollar higher than a year ago and is close to US$4 per gallon. The national average reached US$3.985 on Thursday, rising for a 44th consecutive day, according to AAA, Wright Express and Oil Price Information Service.

Economists and investors are increasingly concerned about the impact of higher fuel prices on the American economy.

"Gasolene has certainly put us at a tipping point," analyst and trader Stephen Schork said.

"The economy is in a precarious situation."

- AP