Oil prices slide on demand worries

NEW YORK: Oil prices slumped Monday, extending heavy losses seen last week as the market reconsidered prospects for a quick recovery from the global economic crisis after weak US labor market data.

Prices slumped despite a new pipeline attack in Nigeria, an important exporter of oil. Meanwhile France and Britain agreed to press Group of Eight partners to support a plan for stabilizing the erratic oil market.

New York's main contract, light sweet crude for August delivery, shed 2.68 dollars to close at 64.05 dollars a barrel as trade resumed after a three-day holiday weekend in the United States.

Brent North Sea crude for delivery in August dropped 1.56 dollars to settle at the same level of 64.05 dollars a barrel in London trade.

"The fear is that the economy is taking the turn for the worse," said Phil Flynn at Alaron Trading. "People just want to get out of oil."

John Kilduff at MF Global said last week's shockingly weak US employment report dampened hopes for recovery from recession in the world's biggest economy, a key factor for energy demand.

"For some time the fundamentals have not squared with prices being seen on the exchange," he said.

Kilduff said that the optimism of the past few weeks was based on the notion of a "green shoots" recovery that now seems more distant.

"The reality, of course, has been that conditions merely got less bad rather than good," he said. "We have always considered employment rates as among the paramount predictors of energy demand and prices.

"The previously noted economic hopefulness has run head-long into the reality of extraordinary joblessness in the US and globally, and there is a growing unease over the legitimacy of the perceived recovery."

A closely watched US Labor Department report last week showed US job losses had surged more than expected to 467,000 in June, pushing the unemployment rate to a new 26-year high of 9.5 percent.

The report, seen as one of the best indicators of economic momentum, reversed the improvement seen the previous month when job losses fell to 322,000.

The market also watched the situation in Nigeria, where militants said they destroyed a Chevron oil pipeline junction and seized six crew from a ship in the latest attacks on Nigeria's key money earner since the government offered an amnesty.

The Movement for the Emancipation of the Niger Delta (MEND) said it attacked the Okan manifold and captured three Russians, two Filipinos and one Indian from a tanker, both on Sunday.

According to the rebels, the manifold controls about 80 percent of the crude that Chevron Nigeria Limited sends to its BOP Crude Loading Platform.

A Chevron spokesman said an investigation had started and no comment would be made.

Elsewhere on Monday, French President Nicolas Sarkozy and British Prime Minister Gordon Brown declared they would soon put forward proposals for talks to address the volatility of the oil market at the Group of Eight summit.

After meeting in France, Sarkozy said the world could no longer tolerate "yo-yo" fluctuations "from one excess to another."

Oil prices have slumped owing to the severe economic downturn after striking historic peaks of more than 147 dollars a barrel a year ago.