Oil prices headed for biggest drop since 2008

NEW YORK (AP) — The price of oil is headed for its biggest monthly decline since December 2008.

Benchmark U.S. crude has dropped nearly 16 percent so far in May. There are growing expectations that the world won’t use as much oil this year as previously expected. On Wednesday, the futures contract fell $2.99, or 3.3 percent, to $87.78 as global stock markets also sank.

Europe’s financial crisis is the most immediate concern, but there have been plenty of signs of weaker demand.

Analysts point to weak U.S. jobs numbers and a slowdown in China’s manufacturing sector. The U.S. and China are the biggest oil consumers in the world.

Earlier this year, energy economists mostly agreed that world oil demand would hit a new record in 2012, probably around 89 million barrels per day. But with demand not growing in China and declining in the U.S., those expectations are starting to change.

Experts also are concerned by a banking crisis in Europe that may pull the eurozone into recession. The European Commission added to those concerns Wednesday, reporting that economic confidence has plummeted this month to the lowest level in two and a half years.

Fears about Europe’s financial stability sent ripples through world markets. Major stock indexes slipped 1 percent to 2 percent.

The euro fell near a two-year low against the dollar, helping to push oil prices even lower. Oil, which is priced in dollars, tends to fall as the dollar rises and makes crude barrels more expensive for investors holding foreign money.

Brent crude, which is used to price oil varieties that are imported into the U.S., fell by $3 to $103.68 per barrel in London.

Meanwhile, U.S. retail gasoline prices fell by a penny to $3.626 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded has dropped by 31 cents since peaking in the first week of April. Gasoline is now 16 cents per gallon cheaper than it was at this time last year.

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