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Oil falls below $87 as weeklong rally stalls

SINGAPORE (AP) — Oil prices fell below $87 a barrel Tuesday in Asia, snapping a week of gains that were fueled by investor optimism the global economy may not slow as much as feared in the second half.

Benchmark oil for September delivery was down 99 cents to $86.89 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. Crude surged $2.50 to settle at $87.88 on Thursday.

In London, Brent crude for October delivery was down $1.21 to $108.70 per barrel on the ICE Futures exchange.

Oil fell below $76 on Aug. 9 on investor fear the U.S. could be headed for a recession, which would drag down demand for crude. However, later that day the U.S. Federal Reserve pledged to keep its lending rates low for the next two years.

Low interest rates mean yields on bonds and other fixed income securities will also likely remain low, pushing investors seeking higher returns into stocks and commodities.

The Dow Jones industrial average rose 1.9 percent Monday, its third day of strong gains.

“Bottom line, the Fed is shoving capital toward higher-risk asset classes, which not only include equities, but also hard assets such as gold and oil,” energy trader and analyst The Schork Group said in a report. “We don’t think it’s unreasonable for crude oil to test the $115 barrier before this year is out.”

In other Nymex trading in September contracts, heating oil fell 2.1 cents to $2.92 a gallon while gasoline slid 2.6 cents at $2.85 a gallon. Natural gas futures dropped 2.7 cents at $4.00 per 1,000 cubic feet.

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