Crude falls below $67 on economic worries

NEW YORK -- Benchmark crude prices fell nearly 4 percent to below $67 a barrel on the New York Mercantile Exchange on Monday after the World Bank lowered its global economic forecast.

U.S. retail gasoline prices also retreated for the first time in nearly two months.

The World Bank said the global economy would shrink more than previously estimated. Meanwhile, burgeoning supplies of crude and gasoline finally appeared to grab hold of energy prices that since early May have ignored market fundamentals.

Benchmark crude for July delivery dropped $2.62 to settle at $66.93 on the New York Mercantile Exchange.

The July contract expires later Monday, and most of the trading already has shifted to the August contract, which lost $2.52 to settle at $67.50.

Average retail gasoline prices fell for the first time in 54 days. The national average for pump prices fell 0.3 cents overnight to $2.69 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service.

A gallon of gas jumped by 28.1 cents in the past month as refiners slowed production and consumption increased during the summer driving season.

Crude prices have doubled since the Federal Reserve in March flooded the economy with more than $1 trillion. The move, which was meant to revive the housing market, weakened the dollar and sent investors looking for safe haven commodities like oil.

Oil executives have maintained that the rising energy prices were more a reflection of investor enthusiasm than market fundamentals. That's because petroleum consumption is still hovering around a 10-year low in the United States.

With the Fed meeting later this week, investors have started shifting their bets, Alaron Trading Corp. analyst Phil Flynn said.

"A lot of people are worried that the Fed is going to say 'Enough is enough, we're going to stop printing money. We're going to stop buying back debt,'" Flynn said.

The World Bank said Monday that the global economy would shrink by 2.9 percent this year, much worse than its March prediction for a contraction of 1.7 percent.

"The global recession has deepened," the bank said, adding that economic damage to developing countries "has been much deeper and broader than previous crises."

Geopolitical turmoil over the weekend and on Monday in oil rich regions has done little to stop the slide that began early Friday. Iran carried out its threat to crush opposition protests over its disputed presidential election.

"A year ago the political turmoil in Iran would have sent oil prices through the roof ... but these days markets are calmer," said KBC Market Services in Britain. "This is a situation that needs to be watched closely, as Iran exports about 2.2 million barrels a day of crude oil to some significant places -- Japan and China stand out."

In other Nymex trading, gasoline for July delivery was down 6.47 cents at settle at $1.8597 a gallon and heating oil lost 5.92 cents to settle at $1.7275 a gallon. Natural gas for July delivery fell 9.9 cents to settle at $3.907 per 1,000 cubic feet.

In London, Brent crude fell $2.21 to settle at $66.98 a barrel on the ICE Futures exchange.