Economic woes send oil $3 lower

The US is a major energy consumer

The price of oil fell by more than three dollars on Monday, extending last week's decline that was prompted by poor US economic data.

The cost of a barrel of light, sweet crude fell $3.42, or 4.5%, to $72.06.

Brent crude - deemed the best indicator of the industry - fell $3.58 a barrel to close at $71.17 in London.

Analysts blamed the drop on sell-offs in world stock markets, which proceeded a Monday rally on Wall Street, as worries of a US slowdown continued.

Concerns over the weak housing market lingered over market calculations as American Home Mortgage sought bankruptcy protection and the president of Bear Stearns resigned following the collapse of two of the firm's mortgage funds.

'Risk adjustments'

"The sell-off was continued from Friday and largely due to the decline in the US financial markets," said Gerard Burg, an oil and gas analyst at the National Bank of Australia.

"Some investors may have taken risk adjustments and are selling out of liquid commodities assets to cover commitments in other markets.

"Apart from the US factor, there are no major fundamental stories dragging down prices."

Worries of an economic slowdown in the US - a major energy consumer - increased after the Labor Department's report showed weaker-than-expected job growth for July and other government figures on slowing service-sector growth.

Dented enthusiasm

Equity markets have been concerned for some time that the problems affecting the US housing market will grow into a credit crunch that will hit the wider economy.

The sub-prime mortgage market, which offers high interest loans to higher risk customers or people on low incomes, has suffered as the US central bank - like many others - has increased interest rates to curb inflation.

This has resulted in record numbers of defaults in the past year, and dented investor enthusiasm for financial companies that have exposure to the industry.

Higher interest rates have also made it more expensive and thus difficult for private equity groups to continue to finance buyouts.

This has led to concerns that the takeover boom that has been a critical driver of stock market performance over the past few years could fizzle out.