Oil plunges $6 on mounting U.S. economic concern

By Matthew Robinson

NEW YORK (Reuters) - Oil dropped more than $6 on Tuesday, the largest drop in dollar terms in 17 years, as growing concern about the economic health of top energy consumer the United States stirred demand worries.

U.S. Federal Reserve Chairman Ben Bernanke said financial markets were under "considerable stress," adding to concerns about the strain of the weak housing market and high energy and food prices on the U.S. economy.

U.S. crude settled down $6.44 at $138.74 a barrel, the biggest one-day drop since 1991, when prices retreated at the start of Operation Desert Storm. The session low was notched at $135.92 earlier.

London Brent crude fell $5.17 to $138.75.

"It would appear to be some large-scale bank liquidation -- not a specific bank but banks in general," said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut.

Investors have piled into oil and other commodities this year as a hedge against inflation and the weak dollar, pushing crude up nearly 50 percent to over $147 a barrel this month.

The gains extended a six-year oil rally launched as surging demand from emerging economies like China and India stretched supply growth.

But consumers in large economies like the United States, already feeling the pinch of the credit crunch and housing crisis, have begun to scale back on energy use with U.S. summer gasoline consumption falling from last year.