Oil slumps on growth concerns, corporate forecast cuts

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Oil prices fell sharply on Tuesday as slowing global economic growth, Europe's continuing debt crisis and weak earnings forecasts from U.S. corporations pressured commodities and equities.

Brent fell for a sixth straight session and U.S. crude was down for a fourth consecutive day to settle at a three-month low.

Evidence of slowing economic growth and an improving crude oil supply picture continued to counter any potential lift from Middle East turmoil and Iran's dispute with Israel and the West over Tehran's nuclear program.

Chemical company DuPont lowered its earnings forecast, announced 1,500 job cuts and posted lower-than-expected profit, helping to push equities, oil and other commodities lower.

The Thomson Reuters-Jefferies CRB index, a gauge widely followed by commodity investors, fell 1.2 percent.

DuPont's gloomy outlook came a day after heavy machinery maker Caterpillar Inc warned that the U.S. economy was slowing faster than expected.

Rising Spanish borrowing costs and slumping business morale in France's manufacturing sector added to concerns about Europe's debt crisis and sputtering economic growth.

"The main bearish driver is the state of the economy," said Filip Petersson, an analyst at SEB in Stockholm. "And that's taken all markets down quite a bit."

TransCanada Corp's Monday restart of its Keystone pipeline carrying crude oil from Canada to the United States added pressure on oil futures.

Brent December crude fell $1.19 to settle at $108.25 a barrel, its lowest settlement since Oct. 3. It slumped to $107.31, its lowest level since Sept. 20 and below the 100-day moving average of $107.42.

U.S. December crude fell $1.98 to settle at $86.67 a barrel, its lowest settlement since July 12. Tuesday's low trade was $85.69.

Tuesday's move lower left U.S. crude poised "for a test on the 61.8 percent retracement of the $77.28 to $100.42 move at $86.12, and possibly below," Michael Fitzpatrick, editor-in-chief, wrote in the industry newsletter EnergyOverview.

REFINED PRODUCTS FUTURES

U.S. refined products futures extended multiday slides, with front-month RBOB gasoline futures off for a ninth straight session. They fell 4.25 cents to settle at $2.6050 a gallon, off 35.43 cents from its $2.9593 settlement on Oct. 10.

Front-month heating oil traded lower for the eighth straight session, dropping 3.33 cents to settle at $3.0434 a gallon, down 21.37 cents from Oct. 11 when it closed at $3.2571 a gallon.

Falling distillate inventories, especially in the U.S. Northeast, the country's biggest heating oil market, had stirred concerns about a potential fuel shortfall as winter approached.

But analysts said a combination of ongoing tepid demand for refined products and healthy crude oil inventories was weighing on both gasoline and distillate prices.

"I think the judgment of the market is that, while (distillate) inventories are still low, they are likely to rise," said Tim Evans, energy analyst for Citi Futures Perspective in New York.

Oil prices also felt pressure from expectations that U.S. crude oil and gasoline inventories likely rose last week, according to analysts polled by Reuters.

But distillate inventories were expected to be lower.

The American Petroleum Institute will release its inventory report at 4:30 p.m. EDT (2030 GMT) Tuesday. The U.S. Energy Information Administration (EIA) will issue the government's report on Wednesday at 10:30 a.m. EDT (1430 GMT).

SUPPLY THREATS

The slide in crude prices on Tuesday came even as the potential remains for Middle East turmoil to disrupt the region's oil supply.

Iran said on Tuesday it would stop oil exports if pressure from Western sanctions got any tighter and that it had a "Plan B" contingency strategy to survive without oil revenues.

Major powers may ask Iran for stricter limits on its nuclear work if it wants an easing of harsh sanctions - a long-shot approach aimed at yielding a negotiated solution, according to Western diplomats.

Syrian rebels were attempting to seize an army base close to the main north-south highway, hoping to create a "safe zone" allowing them to focus on President Bashar al-Assad's southern strongholds. (Additional reporting by Matthew Robinson in New York, Peg Mackey in London and Manash Goswami in Singapore; Editing by Marguerita Choy, Alden Bentley, John Wallace and Jim Marshall)



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