Oil Prices Drop Below $71 a Barrel

LONDON -- Oil prices were down for a second day Friday, slipping below $71 a barrel amid concerns over the U.S. economy.

Light, sweet crude for September delivery lost 61 cents to $70.98 a barrel in trading on the New York Mercantile Exchange. The contract fell 56 cents to settle at $71.59 a barrel Thursday.

Reports Thursday suggesting a sluggish economy and news of spreading problems in the U.S. subprime mortgage sector contributed to the decline. The U.S. Labor Department reported the number of people signing up for jobless benefits grew last week, while many retailers reported disappointing July sales.

Also, French bank BNP Paribas froze three securities funds, saying they no longer know what they are worth because of problems in the U.S. subprime market. Moves by the European Central Bank and Federal Reserve to provide more cash to money markets were taken by investors as further evidence of credit market troubles.

"There are all these concerns about the credit market caused by the U.S. subprime mortgage market and the drop in particular was caused by BNP suspending operations of a few funds," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

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Nymex crude has fallen by more than $7 a barrel since rallying to a new all-time high of $78.77 last week. But some analysts say the decline is not surprising.

"The surge to nearly $80 was driven by a lot of positive momentum buying and not due to physical issues. The pricing was really overdone, there was too much froth in the market when we got to the new high, so the adjustment downwards was justified," Shum said.

Oil prices were also retreating as U.S. gasoline demand weakened, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

"Market sentiment is now quite weak, with the end of the summer driving season close and gasoline demand slowing," Emori said. "It's quite difficult to find bullish factors in the crude oil market at the moment."

The crude market was still supported to some extent by physical concerns, Shum said.

"In the remainder of this third quarter there is still some potential upward exposure, such as the potential for hurricanes affecting the U.S. Gulf of Mexico supply," he said.

The U.S. National Oceanic and Atmospheric Administration issued a new forecast Thursday that placed the chance of an above-normal hurricane season at 85 percent, up from 75 percent in May.

September Brent crude fell 33 cents to $69.88 a barrel on the ICE futures exchange in London.

Heating oil futures lost 1.7 cents to $1.97 a gallon (3.8 liters) while gasoline prices lost 0.3 cents to $1.93 a gallon. Natural gas futures fell 7 cents to $6.52 per 1,000 cubic feet.

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