Oil Prices Dive Below $80

NEW YORK ( TheStreet) -- Oil prices did an about face and plunged back into the red Tuesday afternoon after the Federal Reserve spoke about a "slower pace of recovery over coming quarters" and gave no indication of additional stimulus plans for the U.S. economy.

Brent crude oil for September delivery plummeted $2.34 to $101.40 a barrel and the September contract for West Texas Intermediate light sweet crude oil fell $2.01 to $79.30 after members of the Federal Reserve's open market committee voted Tuesday to keep the key interest rate at near-zero levels at least through mid-2013 as long as economic conditions remain subdued.

"The committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the committee judges to be consistent with its dual mandate," the policymakers said in a statement following the regularly scheduled one-day meeting.

"Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity," they added.

The U.S. Department of Energy has slashed its 2011 world oil demand growth outlook by 60,000 barrels a day to 1.37 million barrels and the Organization of the Petroleum Exporting Countries downwardly revised its global oil demand forecast to growth of 1.21 million barrels a day this year -- 150,000 barrels a day less than forecast in July.

Natural gas for September delivery settled flat at $3.994 per million British thermal units in reflection of fairly hot temperatures in the mid-continent -- or states north of Texas -- and moderately warm readings in the Great Lakes and Northeast; "and a market that continues to be dominated by the supply stream, which is still plentiful," said Cameron Hanover analysts.

"Prices here have already discounted this market in terms of future temperatures and the possibilities of a storm that could close production platforms in the U.S. Gulf," they added.

Oil and gas stocks were trading in positive territory. EOG Resources ( EOG) rose 0.4% to $88.92, Apache ( APA) added 1.1% to $99.42; Devon Energy ( DVN) gained 2.7% to $67.12; Lucas Energy ( LEI) popped 11.2% to $2.09; Kinder Morgan Energy Partners LP ( KMP) jumped 5.8% to $68.32; Kinder Morgan Inc ( KMI) added 6.7% to $25.25; and Southern Union ( SUG) rose 4.6% to $40.70.

-- Written by Andrea Tse in New York.

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