Oil drops on weak GDP report

Oil prices slumped today as the world's largest economy said the economy slowed in the third quarter in what figures to be the clearest sign yet that the US is now in a recession. Light, sweet crude for December delivery fell USD 1.91 to USD 65.59 a barrel on the New York Mercantile Exchange. Oil prices have fallen 55 per cent since peaking at USD 147 a barrel in mid-July. In London, December Brent crude fell USD 1.96 to USD 65.54 a barrel on the ICE Futures exchange. The broadest barometer of the nation's economic health, the gross domestic product, shrank at a 0.3 per cent annual rate in the July-September quarter, the Commerce Department reported on Friday. It marked the worst showing since the economy contracted at a 1.4 per cent pace in the third quarter of 2001, when the nation was suffering through its last recession. The declining GDP number means weak demand for gasoline, analysts said. "We were smacked with the short-term reality that demand is just not going to be there," said Phil Flynn, an analyst at Alaron Trading Corp. The deterioration reflected a sharp retrenchment by consumers, whose spending accounts for the largest chunk of national economic activity. Consumers ratcheted back their spending at a 3.1 per cent pace in the third quarter, the most since the second quarter of 1980, when the country was in the grip of recession. "If the consumers are struggling that bad, the outlook for gasoline demand is not that strong," Flynn said.

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