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Oil Prices Plunge in Wake of S&P Downgrading

The price of oil fell to its lowest point in over eight months after Standard & Poor’s downgrading of the U.S. credit rating this weekend.

Bloomberg reports that oil dropped to $82.52, the lowest intraday price since November 24. Oil for September delivery fell 3.4 percent to $83.97 a barrel at 9:17 a.m. today on the New York Mercantile Exchange. Brent crude for September settlement on the ICE Futures Europe exchange fell 2.9 percent to $106.25 a barrel.

And natural gas futures for September delivery fell to their lowest point in a year, at $3.855 per million Btu, The Street reported.

“After Friday night’s U.S. credit rating downgrade by S&P, financial markets today are receiving an absolute drubbing, as the removal of AAA status from the world’s largest economy highlights the extent of the global economic frailties that exist,” Summit Energy analyst Matt Smith told The Street. “Given the relationship between economic growth and oil prices, WTI crude is correspondingly being walloped this morning, down to a level not seen since last November.”

“There’s flight away from any kind of risky assets at the moment,” Tom Bentz, a broker with BNP Paribas Commodity Futures, told Bloomberg. “It’s hard to say where the bottom is.”

But SEB chief economist Robert Bergqvist told The Street that the drop in oil prices could have far worse, and said Brent crude prices were likely to improve today.

The New York Times reports that overall Wall Street stocks were down sharply this morning, in the first trading since Standard & Poor’s cut the U.S. credit rating from AAA to AA+ late on Friday. That move had global reverberations over the weekend as investors feared that the wave of European sovereign debt crises would extend to Italy and Spain.

Picture credit: Mike_fleming

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