Oil prices tumble on economy worries

NEW YORK: Oil prices tumbled Thursday on new signs that the economy remains weak and that demand for crude is still tepid at best.

Benchmark crude for April delivery fell $2.80 to $77.20 a barrel on the New York Mercantile Exchange. The contract rose $1.14 to settle at $80 on Wednesday.

Oil has been bouncing back and forth for months between $70 and $80 as investors watch economic data for clues about where the economy is heading following the Great Recession.

The signs Thursday were mostly negative as the government said new claims for unemployment benefits last week jumped unexpectedly while a separate report on big-ticket manufactured goods was mixed.

Crude prices rose Wednesday after Federal Reserve Chairman Ben Bernanke told Congress that he expects interest rates to stay low for a while to help boost the economy.

The economy has grown for six months but is not yet spurring hiring and unemployment remains stubbornly high. Couple that with more than ample supplies and signs that the economy still needs to be propped up by federal stimulus "means that the demand were expecting to see may not develop," said Phil Flynn of PFGBest.

Oil prices were also pushed down Thursday by a stronger dollar and a drop in the stock market.

Because crude is traded in dollars, it gets cheaper when the dollar climbs and forces investors holding other currencies such as the euro to pay more for oil. The dollar was near a nine-month high against the euro over worries about economic growth and debt problems in Europe.

Major stock averages were down nearly two percent around midday.

In other Nymex trading in March contracts, heating oil fell 7.55 cent to $1.9666 a gallon, and gasoline lost 7.05 cents at $2.0284 a gallon. April natural gas prices were down 10.2 cents to $4.757 per 1,000 cubic feet.

In London, Brent crude gave up $2.64 at $75.45 on the ICE futures exchange.