Oil drops, gas $4 or more per gallon in 6 states

By Chris Kahn/The Associated Press

NEW YORK — Oil slipped more than 2 percent Monday after Standard & Poor’s lowered its long-term outlook for U.S. debt, raising concerns about the economy and expectations of cuts in government spending. Another move by China to slow its booming economy also helped push prices down.

Benchmark West Texas Intermediate crude fell $2.54, or 2.3 percent, to settle at $107.12 per barrel on the New York Mercantile Exchange.

Gasoline pump prices climbed to a national average of $3.83 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular has increased 29.1 cents in the last month and 96.8 cents from a year ago. Pump prices are above $4 per gallon in California, New York, Illinois, Connecticut, Washington D.C., Hawaii and Alaska.

Economists are watching for signs that high fuel prices are taking a toll on the economy. Industry surveys suggest that drivers are cutting back on gasoline purchases. The combination of stagnant wages and rising food and energy costs has prompted some economists to lower their growth estimates for the economy in the first quarter by half.

A surprise decision by Standard & Poor’s Ratings Service to lower its long-term outlook for U.S. debt to “Negative” from “Stable” made a drop in energy consumption more likely, analysts said. The U.S. is facing a record $1.5 trillion deficit this year, and lawmakers are looking for ways to trim the huge debt.

“If the U.S. doesn’t get its budget under control, we’ll need to raise interest rates,” said Phil Flynn, an energy analyst with PFGBest. Higher interest rates will make it tougher for consumers and businesses to raise money. That will slow down the economy and dampen energy demand, Flynn said.

“This is a real wake-up call for the government,” he said. “They need to get spending under control.”

Oil had been falling since early in the day, following China’s announcement over the weekend that its central bank would raise bank reserve requirements for the fourth time this year in an attempt to get inflation under control. The move is expected to hurt energy demand by making it harder for consumers and businesses in China to raise money. China is the world’s second largest oil consumer behind the U.S.

The price of oil was also undercut by comments from OPEC officials who said on Sunday that the market is oversupplied with crude and the recent surge in oil prices could drag down the global economic recovery. Saudi Arabia’s oil minister said his country cut oil production in March, but will probably raise it again this month.

Also, the dollar rose against the euro and other currencies on Monday. The euro weakened on worries the Greece would default on its debt. Since oil is traded in dollars, a stronger dollar makes crude less attractive to buyers with foreign currencies and the price generally falls.

In other Nymex trading for May contracts, heating oil lost 4.14 cents to settle at $3.1828 per gallon and gasoline futures gave up 3.64 cents to settle at $3.2528 per gallon. Natural gas lost 6.6 cents to settle at $4.138 per 1,000 cubic feet.

In London, Brent crude lost $1.84 to settle at $121.61 per barrel on the ICE Futures exchange.