Oil Extends Losses

Oil prices fell further towards $123 a barrel on Friday, as sluggish US economic data prompted fund selling on fears of eroding demand in the world's top energy user.

US light crude for September delivery fell 78 cents to $123.30 a barrel by 0544 GMT, extending a loss of $2.69 on Thursday's close. London Brent crude fell 84 cents to $123.14 a barrel.

"High oil prices are taking their toll on western economies. Prices are now on a downward trend due to weaker US economic data," said Gerard Rigby of Fuel First Consulting in Sydney.

Prices have fallen from a record above $147 a barrel hit on July 11, the peak of a six-year rally set in motion by an Asian economic boom. Oil's 11.4 per cent loss for the month of July marked the biggest monthly loss in per centage terms since December 2004.

The Reuters-Jefferies CRB Index, an index of 19 commodity futures with a bias towards energy products such as crude oil and natural gas, saw its worst month in 28 years in July. The index lost 10 per cent during the month, against a drop of 10.5 per cent in March 1980.

The Dow industrials and the S&P 500 also fell on Thursday as data showed weaker-than-expected economic growth and a sizable increase in jobless claims amid high energy prices, raising concerns about the corporate profit outlook.

Adding to the gloom, US banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year-old credit crisis took a persistent toll.

The commercial paper market continued to contract, signalling tough conditions for short-term borrower and showing a shortage of liquidity in the system.

US gasoline demand has been trailing last year's levels by about 1.5 per cent as pump prices hit record highs and the economy soured, according to most recent government data, with demand growth also hit in Europe.

But tempering some of oil's losses was news that rebel attacks in Nigeria this week had shut 40,000 barrels per day of output by Royal Dutch Shell, adding to a string of bombings that has disrupted the OPEC nation's production. Dealers also have been on the edge due to the possibility of hurricanes denting production in the Gulf of Mexico.