Oil falls below $85 as Fed warns of economic risks

SINGAPORE (AP) — Oil prices fell below $85 a barrel Thursday in Asia, extending losses from the previous session after the U.S. central bank warned of major risks to economic growth.

Benchmark oil for November delivery was down $1.35 at $84.57 at midday Singapore time in electronic trading on the New York Mercantile Exchange. Crude dropped $1.00 to settle at $85.92 on Wednesday.

In London, Brent crude for November delivery was down $1.72 at $108.64 on the ICE Futures exchange.

Federal Reserve Chairman Ben Bernanke said Wednesday at the end of a two-day policy meeting that there were “significant downside risks” to the Fed’s economic forecasts, and highlighted a weak labor market and high unemployment rate.

The Fed also sought to lower lending rates and spur economic growth with a $400 billion program to sell short-term Treasury bills and buy long-term debt — dubbed “operation twist” — but analysts said it falls short of last year’s $600 billion bond-buying program that ended this year. Most of the Fed’s lending rates are already near zero percent, blunting the possible benefits of the measure.

“We expect it to have only a limited downward impact on longer-term interest rates and the impact on the wider economy will be even more modest,” Captial Economics said in a report. “The cost of borrowing simply isn’t the problem.”

Plunging global equities also weighed on oil prices since traders often look to stocks as a barometer of overall investor sentiment. Dow Jones industrial average fell 2.5 percent Wednesday and Asian stock markets were down Thursday.

In other Nymex trading for November contracts, heating oil fell 2.8 cents at $2.92 per gallon and gasoline futures slid 3.5 cents to $2.62 per gallon. Natural gas for October delivery slumped 1.8 cents to $3.71 per 1,000 cubic feet.

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