NEW YORK (AP) — Oil prices tumbled nearly 4 percent on Thursday, dropping below $99 a barrel on growing fears about the future of the European Union and the global economy.
The 17-nation currency bloc has struggled to deal with massive government debts across Europe that could lead to widespread bank failures. As nations slash spending to get their budgets under control, energy demand in the region is expected to plunge.
Benchmark crude fell $3.77, or 3.7 percent, to end the day at $98.82 a barrel in New York. Thursday's drop was a sharp turnaround from Wednesday, when oil crossed the $100 mark for the first time since July.
Oil had been soaring since the beginning of October for a variety of reasons. The U.S. economy appears to be improving — slowly — while tension about a possible nuclear weapons program in Iran and political unrest in Nigeria threatened to slow supplies from two of the world's largest oil producers.
Still, most of the run-up in oil has been based on expectations for how the oil market will look in the future — not the way it is now. On Thursday, traders were reminded of the serious problems that are still dragging on the world economy.
"Sanity is coming back" to the oil market, said Michael Lynch, president of Strategic Energy & Economic Research.
Spain and France were each forced to pay sharply higher borrowing rates Thursday, making it more expensive for those countries to raise cash. Many investors are retreating from European bond and stock markets, worried that the credit crisis there will not be solved before the region slides into recession.
"People can expect more austerity in Europe, and that can inhibit the ability of economies to grow," independent oil analyst Andrew Lipow said. "Slowing economies means lower demand for petroleum products."
In the U.S., the economic news Thursday was more encouraging. The government said the number of people seeking unemployment benefits fell last week to the lowest level since April, suggesting that layoffs are easing.
But analysts noted that despite the jobs numbers, gasoline demand in the U.S. remains weak. MasterCard SpendingPulse said earlier this week that motorists have bought less gasoline every week for nearly five straight months, when compared with the same period a year ago.
Gasoline prices fell by a penny Thursday to $3.39 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular has lost 59 cents since its peak this year near $4 per gallon in May. It's still 50 cents higher than the same time last year.
In other energy trading, natural gas prices rose 6.6 cents to end at $3.41 per 1,000 cubic feet, after the Energy Information Administration reported that U.S. stockpiles grew less than expected last week. Heating oil fell 5.14 cents to finish at $3.0832 per gallon and gasoline futures dropped 12 cents, or 4.6 percent, to end at $2.5071 per gallon.
Brent crude, which is used to price oil produced in foreign countries, fell $3.42, or 3 percent, to finish at $108.09 a barrel in London.