Page last updated at 22:16 GMT, Friday, 5 September 2008 23:16 UK

Crude oil price drops below $106

Closed pumps at a New Orleans gas station
Falling oil prices come as a relief to motorists.

Oil prices have dipped below $106 as traders predicted that rising US unemployment would lead to consumers cutting back on petrol use.

US light, sweet crude fell as low as $105.16 a barrel before recovering to settle down $1.66 at $106.23. Brent crude dropped $2.21 to $104.09.

Prices have fallen from their record of more than $147 a barrel amid evidence of a looming recession in the US.

At the same time, a number of political and currency risks have also subsided.

And the failure of Hurricane Gustav to cause any major production disruption in the Gulf of Mexico also ensured the price stayed well below recent highs.

'Growing concern'

With economic growth slowing, and many people worried about their job prospects, observers say there is a good chance that consumer spending will slow, limiting demand for crude oil.

The outlook for the US economy became more grim as Labor department figures showed the unemployment rate in the US was at its highest level in nearly five years.

It also revised upwards job loss figures for each of the past two months.

"There's been a terrific amount of growing concern about the outlook for demand globally," said John Kilduff, senior vice president of risk management at MF Global LLC.

"Today's employment report emboldened that concern."

Markets still volatile

Next week the oil producer cartel Opec meets in Vienna with investors waiting to see whether it will indicate plans to cut production - something which would be likely to stem the price drop. The organisation has said it may act to defend the $100-a-barrel level for crude.

The dollar's recent resurgence has also helped speed up the decline in the price of oil.

Many investors bought commodities to hedge against inflation and weakness greenback.

But the dollar rebounded, investment funds rid themselves of the hedges, pushing commodities prices lower.

However, while the price of oil may be falling, analysts are keen to point out that markets remain volatile.

Earlier this year a number of well respected Wall Street firms and analysts predicted that oil could climb as high as $250 a barrel.

In the meantime, however, the drop in oil prices will bring some relief to consumers and governments who have been faced with accelerating price growth and more expensive fuel.

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