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Oil falls below $49, flu pandemic could hurt economy

LONDON - Oil prices fell nearly 6 percent to below $49 a barrel on Monday, pressured partly by expectations the world economy could suffer another blow if a flu outbreak in Mexico turns out to be the start of a pandemic.

U.S. crude oil futures for June delivery were down $3.16 at $48.39 a barrel by 1302 GMT, erasing some of Friday’s gains of $1.93 that brought the contract to settle at $51.55.

London Brent crude was down $2.93 at $48.74 a barrel.

The flu outbreak in Mexico has killed more than 100 people and already spread to the United States and Europe, prompting fears of a pandemic that boosted the U.S. dollar and hit equity markets in Asia and Europe.

(For more stories on the flu outbreak, click on)

“The potential for a drop in jet fuel demand is also weighing on oil markets,” Addison Armstrong, an analyst at Tradition Energy, said in a research note.

Airline shares were hit by expectations the flu outbreak could affect air travel.

“Nervousness about another batch of US earnings reports and macro reports, coupled with a potential pandemic out of Mexico, are both weighing on prices,” said Edward Meir of broker MF Global in a research note.

“The Mexican situation is resurrecting fears of the chilling impact that the SARS epidemic had on economic growth.”

Gains in the dollar, a safe-haven in times of stress, also helped depress oil, which tends to fall when the U.S. currency rises.

TACTICAL SHORTS

Oil is down about $100 a barrel from a record peak in July last year of more than $147.

The global recession and shrinking oil demand had pushed prices towards $30 a barrel earlier this year. They have recovered to around $50 alongside an equity market rally.

“Commodity prices and returns have risen substantially since mid-February lows,” Goldman Sachs said in a research note.

“We believe markets will likely continue to pullback from current levels in the near term, as fundamentals are not yet stable enough to support higher prices,” the bank said.

“As a result, we have opened tactical shorts in both the oil and metals markets in recent days.”

The Organization of the Petroleum Exporting Countries has cut supply by 4.2 million barrels per day since September last year to try to prop up prices.

OPEC meets next on May 28.

Gulf oil producers said on Sunday they could tolerate moderate crude prices for longer to help revive global growth but shared a concern with consumer nations that a prolonged period of low prices could sow the seeds of a future fuel price spike.