Oil drops as growth slows in EU nations

Aviation gas sold for $5.89 a gallon in Simsbury, Conn., Thursday. The average gas price in Massachusetts rose to $4.08 a gallon. (Bob MacDonell/The Hartford Courant via Associated Press)

DALLAS - Crude oil fell more than $3 a barrel yesterday amid signs economic growth is slowing across Europe and may curtail demand for energy.

Oil dropped for the first session in four after a report showed German production, adjusted for seasonal swings, fell 2.4 percent in May, the biggest decline since February 1999. At the same time, the index of UK manufacturing production unexpectedly decreased to the lowest since September, slipping 0.5 percent in May, the Office for National Statistics said in London.

"There has been a lot of focus on how weak the US economy is without necessarily recognizing that the European economy may be weakening, the Japanese economy may be weakening," said Tim Evans, an energy analyst for Citi Futures Perspective in New York. "It's not only about the US."

Crude oil for August delivery fell $3.92, or 2.7 percent, to settle at $141.37 a barrel on the New York Mercantile Exchange, more than double what it was a year ago. The record high was Thursday, when futures reached $145.85.

The national average for a gallon of regular gasoline rose 0.1 cent overnight to a record $4.11, AAA said. The average gas price rose 2 cents in Massachusetts to $4.08 for a gallon of self-serve regular unleaded gas in its latest weekly survey, AAA Southern New England said.

Oil declined as much as 4 percent during yesterday's session, dampened by the dollar's gain against the euro. The US currency rose to the highest against the euro in a week amid speculation that leaders from the Group of Eight industrialized nations may signal support for the dollar and address high energy prices.

The euro fell to $1.5611 against the dollar, the lowest since June 25, before trading at $1.5722 at 3:15 p.m. in New York.

"Whenever the dollar strengthens, that makes commodities more expensive for everyone else in the world," said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Conn. "It makes them less willing to buy oil."

Leaders from the G-8 - Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States - may consider the effect of high energy prices at a three-day summit that began in Japan yesterday.

Italian Prime Minister Silvio Berlusconi said yesterday that deposits required to trade oil futures should be raised to discourage speculation, amid fears by some G-8 leaders that oil prices will reach $200 a barrel.

Speculation of an attack on Iran that could disrupt exports from OPEC's second-largest producer helped push oil to its record last week, and on Sunday Iranian Foreign Minister Manouchehr Mottaki's comments on CNN had the reverse effect.

Heating oil for August delivery fell as much as 4.1 percent yesterday, and gasoline futures were down as much as 3.8 percent.