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Oil tumbles on more weak economic signals

The drop also comes two days after OPEC said it would not cut production of crude before its regularly scheduled meeting in three weeks.

Light, sweet crude for January delivery fell nearly 7 percent, or $3.67 to $50.76 a barrel on the New York Mercantile Exchange. The contract had settled down a penny at $54.43 on Friday.

In London, January Brent crude fell $3.45 to $50.04 on the ICE Futures exchange.

On Saturday, Saudi Oil Minister Ali Naimi said that Organization of Petroleum Exporting Countries will do what needs to be done to shore up falling oil prices when the group meets Dec. 17 in Algeria, but for now it was too early to make another output cut.

Prices continued to slide despite a separate report by Iranian state TV in which OPEC Secretary-General Abdullah El-Badri said that a daily oil production cut of between 1 million and 1.5 million barrels was likely in December.

OPEC, which accounts for about 40 percent of global supply, cut output by 1.5 million barrels a day in October.

‘The OPEC meeting from their viewpoint was a disaster,’ said Phil Flynn, an analyst with Alaron Trading Corp.

He also said there seems to be splits within the group reminiscent of the 1990s when there was too much oil on the market and members routinely cheated on production quotas.

Flynn also blamed the decline in oil prices on the 4 percent drop in the stock market and the bad manufacturing number.

The Institute for Supply Management said its gauge of manufacturing activity fell to a reading of 36.2 in November. That was a steeper-than-expected drop from the October reading of 38.9 and underscored that the hard economic times were beginning to have a major effect manufacturing. A reading below 50 indicates the sector is contracting.

The Commerce Department reported that construction spending dropped by 1.2 percent in October, much bigger than the 0.9 percent decline many analysts expected.

The decline in the stock market follows the first five-day string of gains for both the Dow and the Standard & Poor’s 500 since July 2007, and the largest five-day percentage gain in at least 75 years. The Dow has gained 16.9 percent and the S&P 500 index 19.1 percent since a rally that began Nov. 21.

‘The explosive rally we saw last week seems like a memory today,’ Flynn said.

Survey of manufacturing activity in the euro zone and Britain also points to sharper-than-expected contraction in output. In China, an equivalent survey of its manufacturing sector also made for grim reading, generating fears that one of the main engines of global growth over the last few years is slowing sharply.

Sucden Research in London cited data from the United Nations, which now expects the global economy to grow by just 1 percent in 2009, compared with an earlier forecast expecting growth of 2.5 percent.

Meanwhile, Saudi King Abdullah told the Kuwaiti newspaper Al Seyassah in an interview published Saturday that oil should be priced at $75 a barrel.

Iranian Oil Minister Gholam Hossein Nozari was quoted as saying Sunday that the market was oversupplied by around 2 million barrels per day and that production should be cut by that amount.

In other Nymex trading, gasoline futures fell 5.16 cents to $1.1580 a gallon. Heating oil dropped 5.66 cents to $1.6705 a gallon while natural gas for January delivery shed 12.8 cents to $6.382 per 1,000 cubic feet.