Oil falls on global demand fears, stronger dollar

NEW YORK -- Oil prices extended their losses Wednesday, a day after plunging nearly $6 a barrel, as oil market traders shifted their attention from tropical weather to a stronger dollar and falling demand for petroleum products.

Light, sweet crude for October delivery fell $1.07 to $108.64 a barrel on the New York Mercantile Exchange, after earlier dipping as low as $107.32.

On Tuesday, crude plummeted in a dramatic sell-off after it became clear that Hurricane Gustav had left the U.S. oil infrastructure without major damage. Prices settled at $109.71 a barrel, down $5.75 from the close of trading Friday, before the Labor Day weekend; U.S. floor trading was closed Monday.

At one point Tuesday, crude fell as low as $105.46, its lowest level since April.

Since oil prices reached a record $147.27 on July 11, sentiment among traders has shifted to expect slowing economic growth in the U.S., Europe and Japan will likely spread to developing countries and undermine crude demand.

"That's been a focus of the market, that the demand side has weakened, particularly in developed countries like the U.S.," said David Moore, commodities strategist at Commonwealth Bank of Australia in Sydney. "Had it not been for the hurricane, we would have seen a lower price profile over the last week."

Virtually all oil and natural gas production remained shut down in the Gulf of Mexico, according to the U.S. Minerals Management Service. It was too soon to say when output might resume, though some oil companies were preparing to redeploy evacuated personnel Wednesday.

Without serious damage, oil and natural gas facilities should start up again in a day or two, while coastal refineries could take two to four days to resume production, depending on their size. In 2005, Hurricanes Katrina and Rita knocked out the region's offshore energy infrastructure for several weeks.

Also weighing on oil Wednesday was a stronger dollar versus the euro. A rising dollar encourages investors, who bought oil as a hedge against inflation, to now sell their contracts. The euro fell to $1.4479 from $1.4518 late Tuesday in New York.

Investors were also waiting for a Thursday report from the U.S. Energy Department's Energy Information Administration on U.S. oil, gasoline and distillate stocks for the week ended Aug. 29.

The EIA said last week that crude stockpiles fell slightly by 100,000 barrels to 305.8 million barrels for the week ended Aug. 22, while gasoline stocks dropped 1.2 million barrels.