Crude Drops Under $80

Energy stocks are mostly lower.
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Crude futures fell hard on Tuesday as the weather premium from tropical storm Jerry dissipated and humbling data rekindled worries about a potentially significant slowdown in the U.S. economy.

November light sweet crude declined $1.42 to $79.53 a barrel at the New York Mercantile Exchange. Reformulated gasoline slid 4.5 cents to $2.03 a gallon, and heating oil lost 5 cents to $2.18 a gallon.

Natural gas finished 1 cent lower at $6.36 per million British thermal units.

After jumping into record territory without much help from fundamental market data last week, crude prices have now been hit with a dose of reality in what could be the start of a major correction for oil prices, according to Jim Williams, energy economist at WTRG Economics.

"Crude prices were inflated last week on concerns about severe weather in the Gulf of Mexico and from traders covering their short positions ahead of the expiration of the October West Texas intermediate contract on the Nymex," Williams said. "Now that the weather and technical issues are behind us, we are faced with more fundamental issues facing the energy markets."

The biggest factor now influencing prices "is the health of the global economy," he added.

The latest negative data showed that existing-home sales in the U.S. fell by 4.3% in August. Consumer confidence fell 5.2 points to 99.8 in September, its lowest level since November 2005.

"Today's consumer confidence report was scary," said Williams. "There is an awful lot of uncertainty in this economy, and $80 a barrel crude oil isn't doing anything to help."

Because petroleum products are economic inputs, energy prices are generally highly correlated with economic activity.

Also affecting the energy market were comments made by a key OPEC oil minister. Ali al-Naimi, oil minister to Saudi Arabia, shook the confidence of traders when he told a

Bloomberg

reporter that energy markets are "in turmoil." He declined to explain himself further.

Elsewhere, geopolitical tensions in Nigeria are heating up again after militants in the country's oil-rich delta region ended a voluntary ceasefire and threatened renewed violence and kidnappings of oil workers. According to analysts at Barclays Research, the Movement for the Emancipation of the Niger Delta said that negotiations with newly elected president Umaru Yar'Adua had failed.

Meanwhile, energy stocks were broadly lower. The CBOE Oil Index fell 1.2% to 800.71.

ConocoPhillips

(COP) - Get Report

dropped 2.1% to $87.29, while

Chevron

(CVX) - Get Report

moved 2.6% lower to $91.88. Shares of

Halliburton

(HAL) - Get Report

finished down 1.5% at $38.