Crude falls on downbeat US economic data

OIL PRICES: Downbeat US economic data undermines sentiment. (Getty Images)

Oil prices fell nearly 4 percent on Monday as gloomy U.S. economic data darkened projections for energy demand and refinery workers averted a strike that would have slashed fuel production.

U.S. light crude for March delivery fell $1.60 to settle at $40.08 a barrel. London Brent crude shed $2.06 to $43.82 a barrel.

The losses came after a U.S. government report showed consumer spending fell for the sixth straight month in December, with 2008 as a whole showing the slimmest growth in spending since 1961.

Grim economic news also dominated Asia and Europe, where Euro zone manufacturing shrank and factory prices tumbled at their fastest rate in at least six years.

"The economic data and consumer spending being down just keep the demand problem in focus," said Dominick Chirichella of Energy Management Institute.

Slowing world energy consumption in the midst of the global economic downturn has swollen fuel stocks and helped knock more than $100 a barrel off the price of crude since its July 2008 peak near $150.

Adding to oil's losses Monday was news that union and oil industry negotiators in the United States averted a strike that would have cut fuel production, and that talks over a new contract were progressing well.

Some 10 percent of U.S. refining capacity would be idled if the oil workers walked off the job.

A labor dispute was also affecting the energy industry in Europe, though no supply disruptions had yet been reported.

Despite softening world energy demand, oil prices have held stubbornly above the $40 mark in recent weeks, buoyed in part by aggressive output cuts by the Organization of Petroleum Exporting Countries.

The cartel already has agreed to reductions of about 4.2 million barrels per day since September and member nations have said deeper cuts could be required to stabilize the market. (Reuters)

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