Oil drops 10 pct as economic gloom outweighs OPEC


July 15, 2010 Updated Mar 2, 2009 at 5:04 PM CDT

* OPEC compliance at 81 pct-Reuters survey

* Equities markets fall on economic concerns

(Updates with settlement prices, adds byline)

By Matthew Robinson

NEW YORK (Reuters) - Oil prices dropped 10 percent
to $40 a barrel Monday as a deteriorating world economy
threatened to cut further into fuel consumption, outweighing
OPEC's strong compliance with supply curbs.

The deepening of the 14-month economic slump was
underscored by a report showing spending on construction
projects slumped to its lowest level in over fours years in

Economic woes were also battering financial markets
and making it likely the International Monetary
Fund would downgrade its global growth forecasts into negative

U.S. crude settled down $4.61 to $40.15 a barrel,
while London Brent crude fell $4.14 to settle at
$42.21 a barrel.

The deepening recession has crimped demand for oil
worldwide and sent oil prices off record peaks over $147 a
barrel in July, prompting OPEC to pledge cuts totaling 4.2
million barrels per day (bpd) since September.

A Reuters survey showed the group enforced 81 percent of
the curbs last month, with production down for the sixth
straight month in February.

"Although, OPEC, by all counts, is doing a good job in
complying to its quota levels, it looks like flat price is
being driven by the deteriorating global economic environment
as reflected in the Dow Jones (industrial average)," said
Nauman Barakat, senior vice president at Macquarie Futures

U.S. stocks extended their sharp losses Monday as
insurer American International Group, which posted a
record $61.7 billion quarterly loss, was bailed out with
government money again, fueling fears that the global financial
crisis is worsening.

European equities ended sharply lower, with the
FTSEurofirst 300 index of top European shares down 5.2
percent to 682.31 points -- the lowest close in six years and a
whisker away from its lifetime low of 681.17 points hit in
March 2003.

The economic crisis has prompted some members of OPEC to
call for further output reductions when the group next meets
March 15.

Algerian Energy and Mines Minister Chakib Khelil said it
was quite possible OPEC would cut again.

But Iran's Oil Minister Gholamhossein Nozari said he did
not expect another reduction because the group's 80 percent
commitment to existing curbs had helped stem price falls.
(Reporting by Richard Valdmanis, Matthew Robinson, Gene Ramos
and Robert Gibbons in New York, Christopher Johnson in London;
Editing by Marguerita Choy)

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