Oil slumps 8% on demand woes

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NEW YORK (CNNMoney.com) -- The price of oil fell Monday as investors remained focused on last week's bad economic news and bet that demand for petroleum products will continue to decline.

Light, sweet crude for February delivery fell $3.24, or 7.9%, to $37.59 a barrel. Last week, oil fell nearly $8 a barrel as signs of economic weakness and waning demand weighed on the market.

A report from the Labor Department on Friday showed the nation's economy lost a total of 2.6 million jobs last year, the highest level in more than six decades. The report also showed that the unemployment rate jumped to 7.2% in December from 6.7% in November.

"The overall trend in the market, given the weak economy, is still to the down side," said Stephen Schork, an energy market analyst and publisher of the industry newsletter The Schork Report.

The price of oil lost more than half its value in 2008, and suffered a staggering decline of more than $100 a barrel from its peak last summer as the global economic slowdown undermined demand.

Oil prices had rebounded slightly during the first few trading days of the year, prompting some analysts to speculate that crude could drift higher this week. But that advance was due to year-end portfolio adjustments and "we're back into a bearish track," Schork said.

OPEC: Monday's decline comes despite reports Sunday that Saudi Arabia, the world's top oil exporter, plans to cut output by up to 300,000 barrels per day below its previously announced target reduction.

The Kingdom has already lowered supply this month to 8 million barrels per day as part of OPEC's agreement to reduce overall supplies by a record amount from Jan. 1.

Members of the Organization of the Petroleum Exporting Countries have been drastically scaling back supply in an attempt to stop the rapidly falling price of oil.

But the strategy has had limited success as supply levels remain high and demand continues to deteriorate.

Last week, the Department of Energy said the nation's stockpiles of crude rose by a whopping 6.7 million barrels for the week ended Jan. 2. That far surpassed experts' forecast of a 1.5 million barrel rise, according to a poll by research firm Platts.

"We know there's plenty of supply in the near term," Schork said. "OPEC is taking the appropriate steps, but this is a demand side problem, and there's very little OPEC can do."

Geopolitics: The oil market is also focusing on Israel's military campaign in Gaza, and a dispute between Russia and Ukraine over natural gas supplies.

While neither Israel nor Palestine produce any oil, some analysts worry that the conflict could result in supply disruptions if it escalates into a wider war involving neighboring countries like Iran.

Meanwhile, Russia's state-controlled energy monopoly, Gazprom, resumed delivery of natural gas to Europe via Ukraine Monday, after a weeks-long standoff between the two countries over unpaid bills.

Gasoline: Retail gas prices edged lower overnight, according to a survey from the American Automobile Association.

AAA said the national average price for a gallon of regular gas fell 2 cents to $1.790 a gallon, ending twelve days of consecutive increases of gas prices.

Over the last twelve days, the price of gas rose more than 16 cents, which prompted some analysts to speculate that U.S. demand for gasoline was beginning to recover.

Gas prices, however, usually trend higher at this time of year as refiners enter their scheduled maintenance period, according to Schork.

"It's a sign that the market is reverting back to cyclical pattern," he said.