Recent extreme drops in oil prices highlight the vulnerability facing the commodity if the developed economies—and especially the energy-intensive U.S.—fall into the feared double-dip recession, analysts said.
Stock markets have dropped in recent days as investors lost faith in the ability of policy makers to stave off a debt crisis in Europe and an economic slowdown in the U.S., although sentiment reversed somewhat following a better-than-expected U.S. jobs report.
On Thursday, the Dow Jones Industrial Average closed down more than 500 points, or 4.3%. Oil prices fell even further, with light, sweet crude futures for September delivery settling down 5.8% at $86.63 a barrel on the New York Mercantile Exchange.
"Similar to the $10 crash in May, no single reason can be identified that could alone bring oil prices down to such an extent" as they fell Thursday, said JBC Energy Research in a report to clients. Panic appears to have triggered the selloff, it said.
On Friday, stocks and oil prices continued their slide before paring their losses following a confirmation that the U.S. added 117,000 jobs in July, versus expectations of 75,000.
The extreme volatility of recent days makes it difficult to say where the real floor for oil prices should be, but most analysts agreed the outlook for the market was weaker. The oil market has long been aware of the risk that the simmering debt crisis in Europe could hurt economic growth there, but it appears to be only now digesting the steep downward revision in U.S. growth a week ago and subsequent weak oil-demand data, analysts said.
The U.S. is the largest user of gasoline in the world, typically consuming between 8.5 million and nine million barrels a day, so shifts in demand can have a significant impact on wider oil prices.
U.S. consumer spending has been "significantly" weaker than expected, said Standard Chartered analyst Helen Henton. "Gasoline demand has been particularly disappointing, and was down 3.6% year-on-year" in July, she said.
Greg Priddy, director of Global Oil at consultancy Eurasia Group, said as long as the U.S. looks weak, "the main risk in the crude-oil market over the next quarter will be to the downside."
The last time the U.S. economy led the world into recession, the oil price fell from a high of $147 a barrel in July 2008 to just over $30 a barrel six months later.
Analysts said it is hard to call how low the oil price might go given all the uncertainties, although few are predicting anything as extreme as the 2008 slump.
The Organization of Petroleum Exporting Countries could also act to shore up prices, said J.P. Morgan analyst Lawrence Eagles. "The real question is what is the lowest price that swing producers would be happy with?" he said in a note to clients.
"The core Middle Eastern countries could cut one million to 1.5 million barrels a day over the next six months and still meet oil-revenue needs for this year," he said. "We think they will be quick to respond to Brent prices below $105 a barrel."
Brent futures were up 0.5% at $107.82 a barrel in U.S. trade Friday morning.
Muhammad Ali Khatibi, Iran's OPEC governor, said the group could call an emergency meeting to discuss production levels if prices continue falling, in remarks on Iran's oil ministry Website Shana.
Stock markets have dropped in recent days as investors lost faith in the ability of policy makers to stave off a debt crisis in Europe and an economic slowdown in the U.S., although sentiment reversed somewhat following a better-than-expected U.S. jobs report.
On Thursday, the Dow Jones Industrial Average closed down more than 500 points, or 4.3%. Oil prices fell even further, with light, sweet crude futures for September delivery settling down 5.8% at $86.63 a barrel on the New York Mercantile Exchange.
"Similar to the $10 crash in May, no single reason can be identified that could alone bring oil prices down to such an extent" as they fell Thursday, said JBC Energy Research in a report to clients. Panic appears to have triggered the selloff, it said.
On Friday, stocks and oil prices continued their slide before paring their losses following a confirmation that the U.S. added 117,000 jobs in July, versus expectations of 75,000.
The extreme volatility of recent days makes it difficult to say where the real floor for oil prices should be, but most analysts agreed the outlook for the market was weaker. The oil market has long been aware of the risk that the simmering debt crisis in Europe could hurt economic growth there, but it appears to be only now digesting the steep downward revision in U.S. growth a week ago and subsequent weak oil-demand data, analysts said.
The U.S. is the largest user of gasoline in the world, typically consuming between 8.5 million and nine million barrels a day, so shifts in demand can have a significant impact on wider oil prices.
U.S. consumer spending has been "significantly" weaker than expected, said Standard Chartered analyst Helen Henton. "Gasoline demand has been particularly disappointing, and was down 3.6% year-on-year" in July, she said.
Greg Priddy, director of Global Oil at consultancy Eurasia Group, said as long as the U.S. looks weak, "the main risk in the crude-oil market over the next quarter will be to the downside."
Analysts said it is hard to call how low the oil price might go given all the uncertainties, although few are predicting anything as extreme as the 2008 slump.
The Organization of Petroleum Exporting Countries could also act to shore up prices, said J.P. Morgan analyst Lawrence Eagles. "The real question is what is the lowest price that swing producers would be happy with?" he said in a note to clients.
"The core Middle Eastern countries could cut one million to 1.5 million barrels a day over the next six months and still meet oil-revenue needs for this year," he said. "We think they will be quick to respond to Brent prices below $105 a barrel."
Brent futures were up 0.5% at $107.82 a barrel in U.S. trade Friday morning.
Muhammad Ali Khatibi, Iran's OPEC governor, said the group could call an emergency meeting to discuss production levels if prices continue falling, in remarks on Iran's oil ministry Website Shana.
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