Oil sinks as economy falters
Investors worry that the worsening crisis could lead to a further decline in demand for oil.
NEW YORK (CNNMoney.com) -- Oil prices continued to decline Thursday as global economic problems hammered demand for crude products.
U.S. crude for November delivery settled down $2.36 to $86.59 a barrel in New York.
As the world economy weakens and borrowing money from banks becomes more difficult, many worry that businesses and consumers will cut back on fuel consumption.
When money is tight, energy expenditures are often among the first to be cut, according to analysts.
In an effort to loosen up the credit markets, the Federal Reserve and central banks in Europe launched coordinated interbank lending rate cuts Wednesday. And last Friday, President George W. Bush signed into law a $700 billion plan to allow the Treasury Department to buy up banks' problem assets.
"We're on the right track," said Phil Flynn, energy analyst with Alaron Trading in Chicago.
"The government's actions will slow the [demand] contraction for sure," he said, adding that it was cheap credit that helped demand for crude soar in the first place. However, he also said it would take some time before demand begins to recover.
Despite the government's efforts, markets have not responded well.
In the United States, the Dow Jones industrial average fell 2% on Wednesday and continued to decline during Thursday trading. Over the past six sessions, the index has lost 1,600 points.
Supplies of crude in the United States grew by 8.1 million barrels last week, according to the Energy Department, underscoring the drop in demand in from the world's largest oil consumer.
The government also reported a 5.3% decline in demand for motor gasoline over the four weeks ended Oct. 3 compared to the same period a year earlier.
Falling demand helped drive gas prices down from a national average of $4.114 a gallon in mid-July, according to motorist group AAA. Over that same period, crude oil prices have also fallen more than 40% from an all-time high of $147.27 a barrel.
By Thursday, gas was selling at an average of $3.403 a gallon, AAA reported.
Worry about falling crude prices and the slowing economy struck at the heart of the Organization of Petroleum Exporting Countries.
Officials of the cartel, which is responsible for coordinating prices and production levels for major oil exporters such as Saudi Arabia and Venezuela, hinted Wednesday that it may need to cut production to keep prices from falling off a cliff.
However the organization may have little success in reversing the trend, according Peter Beutel, oil analyst with Cameron Hanover, who noted that OPEC hasn't had much luck boosting oil prices in the past. "Over the long haul it has not - not in the 1980s, not in the 1990s," he said.
On Thursday, OPEC called for an "extraordinary" meeting to be held Tuesday, Nov. 18 in Vienna "to discuss the global financial crisis, the world economic situation and the impacts on the oil market," according to a statement emailed to reporters. 
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