Oil volatile around $67 on grim World Bank view

Oil prices were volatile today, as continued uncertainty about the global economy and demand for crude were partly offset by the weaker dollar, which drew some speculators back to commodities.

Earlier in the session, sharp declines in Asian stock markets, coming after Monday’s drop on Wall Street, helped push prices down. By early afternoon in Europe, benchmark crude for August delivery was up 7 cents to $67.57 a barrel in electronic trading on the New York Mercantile Exchange. The contract hit a low of $66.37 before rebounding.

On Monday, it dropped $2.52 to settle at $67.50.

The euro rose to $1.3968 on Tuesday, up from $1.3865 late Monday in New York, making commodities such as oil and gold attractive to investors who use them as a hedge against inflation and dollar weakness.

A drop from an eight-month intraday high of $73.23 earlier this month accelerated after the World Bank said it expected the global economy to shrink by 2.9 percent this year, much worse than its March prediction for a contraction of 1.7 percent.

The bank also lowered its 2010 growth forecast to 1.7 percent from 2 percent.

The World Bank’s more pessimistic outlook helped puncture market hopes that massive global fiscal stimulus could spark growth by the end of the year.

Benchmark stock indices in Japan, Hong Kong and South Korea tumbled nearly 3 percent Tuesday, while European showed small gains. On Monday in New York, the Dow Jones industrial average fell 2.4 percent on Monday after a 3 percent drop last week.

“Financial markets were expecting a quicker recovery, so for the World Bank to make such a large revision down surprised people,” said Ben Westmore, an energy analyst with National Australia Bank in Melbourne.

Investor expectations of growing crude demand from developing economies will likely keep prices from falling below $60 a barrel, Westmore said.

At a meeting in Vienna with European Union energy officials, the Organization of the Petroleum Exporting Countries reiterated its warning that higher prices were needed to keep money flowing into the oil industry to support development and exploration.

“OPEC stressed that oil prices at low levels would not sustain the industry and could lead to underinvestment, thus sowing the seeds for future market tightness and instability,” the European Commission said in a statement about the meeting.

The Vienna-based oil group, whose members account for around 40 percent of the world’s oil production and over 75 percent of its reserves, has in the past said it seeks crude prices of $75-$80 a barrel.

In other Nymex trading, gasoline for July delivery fell 0.81 cent to $1.8516 a gallon and heating oil was down 0.21 cent to $1.7254. Natural gas for July delivery gained 1.1 cent to $3.944 per 1,000 cubic feet.

In London, Brent prices rose 1 cent to $66.99 a barrel on the ICE Futures exchange.