Oil tumbles on failed auto bailout

OHIO: Oil prices fell sharply on Friday as a proposed $14 billion bailout for U.S. automakers collapsed in the Senate. Also dragging down prices was another round of poor economic news as consumers cut back on spending for a record fifth straight month.

Crude's fall capped a volatile week in which prices surged on the back of a weakening dollar, and also the potential for severe production cuts from OPEC.

``We are being torn in a lot of different directions,'' said Phil Flynn, an analyst at Alaron Trading Corp.

Oil prices fell 7 percent, or $3.38, to $44.60 a barrel on the New York Mercantile Exchange.

In London, January Brent crude fell $3.24 to $44.15 a barrel on the ICE Futures ee a sell-off Friday, crude had risen 7 percent this week despite a stream of dour economic reports and predictions of falling demand.

Oil analyst Stephen Schork said in his report Friday that ``when you get a market that is oversold, which was the case for crude oil heading into this week, you get large, seemingly unexplainable spikes in the market. This is what we think we are witnessing this week. Therefore, we will stick to our guns and will maintain our bearish bias.''

Economic data released Friday suggested the worst recession in a generation has tightened its grip on the nation.

Retail sales dropped by 1.8 percent last month. It was the fifth straight decline, a stretch of weakness never before seen on the government's retail sales records.

Wholesale prices plummeted 2.2 percent in November as prices for gasoline and other kinds of energy fell. It was the fourth straight monthly decline.

And businesses, facing a record drop in sales, reduced inventories in October by the largest amount in five years, another sign the recession likely will force further cuts in production.

The Commerce Department says businesses slashed inventories they were holding on shelves and back lots by 0.6 percent in October, three times the 0.2 percent decline economists expected. It was the biggest cut in inventories since August 2003.

Flynn said the up-and-down trading this week was similar to what happened in October when oil markets tried to keep a $60 price on oil.

The difference now is that the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, and Russia, another major oil producer, are threatening production cuts to keep prices above $40, Flynn said.

Oil producing nations were shocked when oil fell to $40.50 exactly one week ago.

Many analysts expect a production cut of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year, when OPEC meet Dec. 17 in Algeria.

Flynn said OPEC and Russia seem to be pulling out all the stop to support prices.

``If this doesn't work, they're destined to the market forces like everyone else,'' he said.

In other Nymex trading, gasoline futures fell 6.2 cents to $1.0165 a gallon. Heating oil dipped 5.7 cents to $1.4494 a gallon and natural gas for January delivery lost 7.5 cents to $5.523 per 1,000 cubic feet.