NEW YORK, United States

Oil dropped more than two per cent yesterday on fears that the US and Europe are headed for a prolonged economic slump.

Benchmark West Texas Intermediate crude lost US$2.01 to US$84.44 per barrel in New York.

The US economy is struggling to grow, and investors remain tentative after the government reported last week that the economy failed to add jobs in August. Europe’s debt crisis has also raised doubts about further economic recovery there.

“Confidence is not high,” said Cameron Hanover analyst Peter Beutel. Beutel said investors are waiting for President Obama and the Federal Reserve to explain how they’ll stimulate the economy and create jobs.

With the unemployment rate hovering at 9.1 per cent, “it will take something major from the White House or from the Fed to turn this around,” Beutel said.

Earlier this year, economists predicted that a rebounding global economy would push world oil demand to record levels in 2011. Now, analysts say they’re not so sure it’s going to happen.

China and other developing nations are still going to drive oil demand. But they won’t grow as fast if consumers in the US and Europe cut back on purchases of clothing, toys, electronics and other goods that are made in foreign factories.

“Oil demand both domestically and globally will fall short of most expectations during the current second half of 2011,” independent analyst Jim Ritterbusch said.

Meanwhile, retail gasoline was flat overnight at a national average of US$3.66 per gallon. A gallon of regular unleaded is 97.7 cents higher than it was a year ago.

In other trading, heating oil lost 1.45 cents to US$2.9829 per gallon and gasoline futures dropped 4.85 cents to US$2.7911 per gallon. Natural gas was essentially flat at US$3.868 per 1,000 cubic feet.

In London, Brent crude, which is used to price many international oil varieties, rose US$1.67 to US$111.75 per barrel.