The financial crisis in Europe is sending oil prices back to where they were four months ago.
Oil prices fell more than 4 percent Wednesday on worries that a financial crisis in Greece could spread, with European banks getting burned if the country defaults on its debt. That sent the dollar surging against the euro, another negative for oil. And the Europe news comes on the heels of recent U.S. economic weakness and signs of declining demand for oil and gasoline.
"Things are very unsettled right now," Michael Lynch, president of Strategic Energy & Economic Research, said. Three years after the banking meltdown in the U.S., investors remain skittish about banks, Lynch said. "Just a whiff of a crisis, and everyone's ready to bolt."
Benchmark West Texas Intermediate crude plunged $4.56, or 4.6 percent, on Wednesday to settle at $94.81 per barrel on the New York Mercantile Exchange. That's the lowest level since late February, when a rebellion in Libya closed off that country's oil exports. Brent crude, which is used to price many international oil varieties, dropped $6.34, or 5.3 percent, to settle at $113.01 per barrel on the ICE Futures exchange.
Riots broke out in Greece on Wednesday over proposed austerity measures as the government struggles with a simmering debt crisis. Moody's ratings service said it may downgrade three big French banks that face losses on Greek bonds. And the warning worried investors that Greece's problems could spread to other financially troubled European countries like Spain, Portugal and Ireland.
Europe consumes about 18 percent of the world's oil, and ongoing economic troubles there could slow demand.
The euro lost 2 percent against the dollar. Oil tends to fall as the dollar rises because oil is priced in dollars and becomes more expensive for investors holding foreign currencies as the dollar gets stronger.
Oil began a steady rise in February from about $84 a barrel after unrest swept through Libya and shut in its 1.5 million barrels of daily oil exports. Anti-government protests broke out in other countries in the oil-rich region and concerns grew that shipments from the biggest oil exporter in the world, Saudi Arabia, could be disrupted.
Oil hit a three-month high of $113.90 in early May but fell 17 percent in five days as experts warned high energy costs were slowing the global economic recovery. Gasoline demand in the U.S. fell as pump prices hit $4 a gallon or more in a number of states.
Concerns about Europe's economy rippled through Wall Street on Wednesday. Stock markets in the U.S. gave back all of the gains they made Tuesday -- and then some. The Dow Jones Industrial Average tumbled nearly 179 points. The Standard and Poor's 500 and the Nasdaq dropped as well.
Oil traders ignored some good news. The Energy Information Administration reported that crude oil supplies in the U.S. shrank more than expected last week while wholesale gasoline demand increased. The EIA report showed that crude supplies fell by 3.4 million barrels. Analysts expected a decline of 1.9 million barrels.
The EIA said gasoline supplies increased last week, though much less than analysts expected. Gasoline demand increased slightly as well, but independent analyst Jim Ritterbusch said the U.S. continues to sit on a comfortable supply and relatively high pump prices should limit drivers' trips to the gas station.
"I just don't see demand improving for gasoline this summer on a sustained basis," Ritterbusch said.
Retail gasoline prices continued to fall, although they're still about $1 per gallon higher than a year ago. Gas fell almost a penny to a national average of $3.696 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is 26.6 cents cheaper than it was last month.
Pump prices are expected to continue to drift lower this month, perhaps to a national average of $3.50 a gallon. Wednesday's big drop in oil, however, will not immediately be reflected at the pump since retail gas prices tend to trail oil by about two weeks.
In other Nymex trading for July contracts, heating oil fell 14.1 cents, or 4.5 percent, to settle at $2.9848 per gallon and gasoline futures lost 14.11 cents, or 4.6 percent, to settle at $2.9235 per gallon. Natural gas fell less than a penny to settle at $4.577 per 1,000 cubic feet.
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