By PABLO GORONDIAssociated Press
The price of oil fell below $87 a barrel Wednesday after the Organization for Economic Cooperation and Development cut its growth outlook for the U.S. and the 17 European Union countries that use the euro currency.
By early afternoon in Europe, benchmark oil for January delivery was down 73 cents to $86.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 56 cents to finish at $87.18 a barrel on the Nymex on Tuesday.
The Paris-based OECD said Tuesday that the combined economy of the 17 euro countries will contract by 0.4 percent this year, worse than May's 0.1 percent forecast. For 2013, it is expected to contract a further 0.1 percent.
The OECD also downgraded its forecasts for the U.S. economy. Even if the White House and Congress strike a budget deal before Jan. 1 and avoid the so-called fiscal cliff of automatic tax hikes and spending cuts, the OECD said the U.S. will grow by only 2 percent next year, down from May's forecast of 2.6 percent.
Traders said weak economic growth would likely hurt demand for energy.
Michael Hewson, senior market analyst of CMC Markets, said the OECD report refocused concerns on "the toxic effect the European crisis continues to have on global growth prospects."
Statistics from the Association of the German Petroleum Industry quoted in a report by JBC Energy in Vienna showed that German gasoline consumption in September fell around 11 percent on the year.
"German gasoline demand has been shrinking over the past decade on the back of efficiency gains, dieselization, but ultimately this year growing pump prices are the key factor driving this downfall with the impact of a slowing economy," JBC said.
The budget dispute known as the "fiscal cliff" faced by the United States was also weighing on markets.
"If Democrats and Republicans fail to reach any agreement by year's end, automatic tax hikes and expenditure cuts worth a total of $600 billion will come into force at the beginning of 2013, which could push the US economy into recession," said a report from Commerzbank in Frankfurt.
Brent crude, which is used to set prices for many international varieties of oil, fell 64 cents to $109.26 a barrel on London's ICE Futures exchange.
In other energy futures trading on the Nymex:
- Wholesale gasoline lost 1.36 cents at $2.682.
- Natural gas was down 4.1 cents to $3.728 per 1,000 cubic feet.
- Heating oil fell 0.78 cent to $3.0169 a gallon.
Pamela Sampson in Bangkok contributed to this report.
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