Oil falls 5.4 percent in biggest drop since 2004

Fri Aug 22, 2008 4:39pm EDT
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By Richard Valdmanis

NEW YORK (Reuters) - Crude oil prices fell more than 5.4 percent on Friday in the biggest one-day slide since 2004 as dealers turned their focus to rising supply levels and weakening global demand.

A rebound in the U.S. dollar encouraged the sell-off, applying downward pressure across the commodities markets by weakening the purchasing power of buyers using other currencies, dealers said.

The slide adds to a more than 20 percent fall in the price of crude since mid-July and could increase the chance oil cartel OPEC will cut official production limits when the group meets in Vienna on September 9.

U.S. crude fell $6.59, or 5.4 percent, to settle at $114.59 a barrel -- the biggest fall in percentage terms since December 27, 2004. London Brent crude fell $6.24 to $113.92 a barrel.

"People who were buying yesterday are taking profits today," said Peter Beutel, analyst at consultancy Cameron Hanover. "There is also renewed technical selling and talk again of demand destruction. The dollar is strong again too."

The declines Friday were encouraged by two reports -- one showing an uptick in OPEC crude oil output and another showing an expected decline in U.S. travel over the September 1 Labor Day holiday weekend as high fuel prices hit consumers.

Industry consultant Petrologistics said on Friday OPEC oil output was expected to rise in August by 450,000 barrels per day, to 32.95 million bpd, a factor that could further beef up inventory levels in consumer nations.

Meanwhile, the U.S. auto and travel group AAA said that Labor Day holiday travel was expected to fall this year by the largest amount in at least eight years as consumers struggle with higher gasoline prices and airfares.   Continued...

<p>An oil tanker nears the Trans-Alaska Pipeline Marine Terminal in Valdez, Alaska, August, 9 2008. REUTERS/Lucas Jackson</p>