Crude Oil Falls to Six-Week Low on Fears of Global Recession c.2011 Bloomberg News

Sept. 23 (Bloomberg) -- Oil sank to the lowest level in more than six weeks as a pledge by Group of 20 nations to tackle rising risks failed to ease concern the global economy is on the brink of another recession.

Futures fell as much as 3.7 percent in New York, tumbling with other commodities and equities to extend yesterday’s 6.3 percent drop. Prices pared losses as equities and the euro trimmed declines amid speculation global central banks will take coordinated measures to prevent a financial crisis.

“The last couple of days have been pretty wild and it looks like a lot of fears about the economy continue to weigh on the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The only thing that’s stemmed it is the dollar has turned and suddenly gone negative.”

Crude for November settlement fell 54 cents, or 0.7 percent, to $79.97 a barrel at 11:59 a.m. on the New York Mercantile Exchange. Earlier, it touched $77.55, the lowest price since Aug. 9. Futures are down 9.1 percent this week, headed for the biggest drop since the five days ended Aug. 5. Prices have fallen 12 percent this year.

Brent for November delivery fell 45 cents, or 0.4 percent, to $105.04 a barrel on the London-based ICE Futures Europe exchange.

The Standard & Poor’s 500 Index rose 0.5 percent to 1,134.68 after earlier declining as much as 0.7 percent. The Dow Jones Industrial Average gained 6.88 points to 10,740.71.

European Stocks

The benchmark Stoxx Europe 600 Index increased 0.6 percent to 216.19, recovering from a drop of as much as 2.6 percent.

G-20 finance chiefs pledged to address risks to the global economy and pushed Europe to contain its sovereign debt crisis. Policy makers are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” group finance ministers and central bank governors said in a statement late yesterday in Washington.

“We had some cheap talk from the G-20,” said Jason Schenker, the president of Prestige Economics, an energy advisory company in Austin, Texas. “There were soothing words but no concrete action.”

Implied volatility for at-the-money Nymex crude oil options expiring in November, a measure of expected price swings in futures and a gauge of options prices, surged to the highest level in six weeks for the contract nearest to expiration. Volatility increased to 49.2 percent at noon in New York from 48.5 percent yesterday, according to Bloomberg data.

Central Bank

“A lot of this stuff is self-correcting,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “Commodities have now come down quite a bit. Energy and metal prices are lower and that will put more money in consumers’ pockets. Eventually you will see this reflected in the economic data.”

The European Central Bank may act to address risks to growth as soon as next month should economic data disappoint, Governing Council member Luc Coene said.

Potential measures include the reintroduction of longer- term bank loans with maturities of 12 months or even longer, Coene, who heads Belgium’s central bank, said in an interview in Washington late yesterday.

Asked if an interest-rate cut is warranted, Coene said while that wouldn’t help to bring down longer-term borrowing costs, “the ECB has never ruled out things beforehand.”

Oil prices may fall next week, according to a Bloomberg News survey of analysts. Twenty-two of 40 respondents, or 55 percent, forecast oil will decline through Sept. 30, while nine, or 23 percent, predicted prices will increase. Nine estimated there will be little change. Last week, 45 percent of the surveyed analysts projected a drop.

Fuel Demand

U.S. fuel demand rose last month as the consumption of distillates, including diesel used by drivers, jumped to a record for August, according to the American Petroleum Institute. Total deliveries of petroleum products, a measure of demand, increased 0.3 percent to 19.7 million barrels a day last month from a year earlier, the industry-funded group said in a report today from Washington.

Oil volume in electronic trading on the Nymex was 512,324 contracts as of 12:02 p.m. in New York. Volume totaled 786,485 contracts yesterday, 19 percent above the average of the past three months. Open interest was 1.38 million contracts, up from the nine-month low of 1.36 million the day before.

--With assistance from Mark Shenk in New York and Rachel Graham and Sherry Su in London. Editors: Dan Stets, Charlotte Porter

To contact the reporter on this story: Margot Habiby in Dallas at mhabibybloomberg.net

To contact the editor responsible for this story: Dan Stets at dstetsbloomberg.net