Crude Drops on Economic Concerns, Norway Resolution

Oil futures Tuesday tumbled 2.4% as an oilfield shutdown in Norway was averted and as new economic indicators provided fresh evidence of economic weakness.

Light, sweet crude for August delivery settled at $83.91 a barrel on the New York Mercantile Exchange, down $2.08. Much of the loss came in the last 45 minutes of trading. Brent crude on the ICE futures exchange settled down 2.3%, or $2.35, at $97.97.

Oil trading throughout the day was dominated by news that Norway's government had resolved a labor dispute with workers without a complete shutdown of Norway's 2 million barrels a day. Before the government intervened, the Norwegian oil industry had threatened to suspend all production, a move that traders said would have tightened markets considerably.

Besides the Norway resolution, analysts also pointed to the latest weak economic indicators. The National Federation of Independent Business said the small-business optimism index dropped 3 points to 91.4 last month. The NFIB called the drop a "substantial decline" and proclaimed the current reading as "surely an indication of slow growth."

"The U.S. is just in a very muddled economic situation," said Kyle Cooper, managing partner at IAF Advisors, a Houston energy consulting firm.

Analysts also pointed to weak Chinese trade data in recent days and to news that China had reduced its imports of crude oil. China's imports of crude oil in June fell to their lowest level since December. China imported 21.72 million metric tons of crude oil in June, equivalent to 5.3 million barrels a day, according to preliminary data Tuesday from the General Administration of Customs. This was down from May's record 6.02 million barrels a day.

Oil market watchers worry that while the economic outlook remains weak, it isn't so bad as to fuel another round of quantitative easing, where the Federal Reserve pumps money into the economy to stimulate activity.

"The worst-case scenario is slow growth without quantitative easing," said Jason Schenker, president of Prestige Economics, a commodity market and research consulting firm.

Front-month reformulated gasoline blendstock, or RBOB, settled at $2.75 a gallon, down 1.25 cents. Front-month heating oil settled down 2.95 cents to $2.72 a gallon.