Oil prices drop in line with stock markets

World oil prices fell sharply Wednesday in line with tumbling global equity markets as investors set aside a positive International Energy Agency report on demand.

New York’s main contract, light sweet crude for September, dropped 2.23 dollars to end the day at 78.02 dollars.

London’s Brent North Sea crude for delivery in September sank 1.96 dollars to 77.64 dollars a barrel.

“Crude oil prices retreated below 80 dollars per barrel following losses in the global equity markets,” said Sucden analyst Myrto Sokou.

The Dow Jones Industrial Average dropped 2.43 percent at 1900 GMT, with Asian and European markets also down sharply after both the Fed and the Bank of England downgraded their economic outlooks, sparking deep concern over the global recovery, dealers said.

Against this backdrop, news of falling US oil reserves and increased demand worldwide did little to push prices higher.

The US government reported Wednesday that crude inventories fell by three million barrels last week to 355 million barrels.

Earlier, the Paris-based International Energy Agency raised its estimate for world oil demand this year by 80,000 barrels per day, and for next year by 50,000, on the basis that the global economy grows 4.5 percent this year and 4.3 percent in 2011.

The revised figures mean total demand this year would rise 1.8 million barrels per day or 2.2 percent to 86.6 million. It would then rise by 1.3 million barrels per day or 1.5 percent to 87.9 million next year, according to the IEA.

“The IEA monthly report is likely to provide some support for crude oil prices,” Sokou said.

“It raised its forecast for global oil demand for 2010 and 2011 but said that if the global economy seems weaker than (first thought), then any potential rise in the oil consumption will be wiped out.”

Economic recovery is pushing up estimates of oil demand this year and next, but there are dangers to growth in advanced nations and some emerging countries, the IEA added.

The IEA is the oil strategy and monitoring arm of the 31-member Organisation for Economic Co-operation and Development.