Oil dropped near $96 a barrel Friday after the U.S. government said the economy expanded at a meager 1.3 percent annual rate in the second quarter.
The data raised questions about demand for oil in the months ahead. At the same time, the clock continued to tick on congressional debates about the best way to raise the government debt limit before Tuesday's deadline to avoid a default.
Benchmark West Texas Intermediate crude for September delivery dropped $1.52 to $95.90 per barrel in morning trading on the New York Mercantile Exchange. In London, Brent crude fell 43 cents to $116.93 per barrel on the ICE Futures exchange.
The Commerce Department also revised the January-to-March figures to show growth of just 0.4 percent. That means economic growth in the first six months was the weakest since the recession ended two years ago.
High gas prices, job worries and a weak housing market have combined to prompt consumers to conserve money. Consumer spending increased 0.1 percent this spring, which was the smallest gain in two years. And government spending fell for the third straight quarter.
That worries traders because the U.S. has the world's largest economy and slower growth could translate into waning demand for oil. In addition, Europe continues to deal with its sovereign debt issues and there are signs of slower economic growth in China, a huge importer of oil and other commodities.
Oil prices have seesawed this month, from $94.90 a barrel on July 1 to $99.87 on July 22 before falling again.
"Traders are still connecting the dots between recent evidence of economic deterioration and reduced oil demand," energy analyst Jim Ritterbusch said. "We are seeing a trend here and it's signaling a much less robust economic recovery than virtually everyone anticipated."
Traders are selling contracts as they wait for a clearer picture about what may lie ahead, he said.
A key part of the mix is the tense negotiations over the debt limit before Tuesday to avoid a possible default on government debt. Without an agreement in place, many analysts believe economic growth will continue to shrink.
In addition, traders are watching Tropical storm Don, which is moving across the central Gulf of Mexico closer to southeast Texas. They are concerned about the potential impact the storm may have on Gulf oil operations.
Meanwhile, pump prices continue to climb even though demand has been anemic for July, which typically is one of the heaviest driving periods as Americans travel on vacation.
The national average for unleaded gasoline rose 0.4 cent overnight to $3.71 a gallon, according to AAA, Wright Express and Oil Price Information Service. That's 16.7 cents more than a month ago and 96.6 cents more than a year ago.
Analysts believe the prices will remain within a fairly narrow range for the next couple of months until there is more clarity on the economic front.
In other Nymex contracts for August, heating oil fell about 1 cent to $3.1049 a gallon, gasoline lost 1.95 cents to $3.043 a gallon and natural gas dropped 5.4 cents to settle at $4.19 per 1,000 cubic feet.
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