July 17 (Bloomberg) -- Crude oil fell more than $5 a barrel, dropping below $130 for the first time in six weeks, as natural gas futures tumbled and global economic growth slows.

Natural gas dropped more than 7 percent after a government report showed that U.S. supplies rose a greater-than-forecast 104 billion cubic feet last week. Some users can switch between oil- based fuels and gas depending on cost. Oil also fell because of reports showing that the U.S. and Chinese economies are slowing.

``The rout in natural gas is pulling oil lower,'' said Addison Armstrong, director of market research at TFS Energy LLS in Stamford, Connecticut. ``The sheer weight of the decline is bound to impact all the energy markets. A consensus was already forming that prices were too high.''

Crude oil for August delivery fell $5.31, or 4 percent, to settle at $129.29 a barrel at 2:55 p.m. on the New York Mercantile Exchange, the lowest close since June 5. Futures are up 75 percent from a year ago.

Futures have dropped almost $18 from last week's record of $147.27 a barrel on signs that consumption in the U.S. is falling. Oil is down 11 percent since July 14, the biggest three- day drop since December 2004.

Prices closed below the 50-day moving average for the first time since Feb. 8, an indication that the bull market may be coming to an end. Traders use moving averages of different periods in conjunction with other statistical patterns for buying and selling decisions.

Oil also fell because August options expired at the close of Nymex trading today. August $130 puts, which represent the right to sell oil at that price, were the most actively traded options contract on the Nymex today.

Natural Gas

Natural gas for August delivery declined 86.1 cents, or 7.6 percent, to settle at $10.537 per million British thermal units in New York, the lowest close since April 17.

U.S. natural gas inventories were forecast to increase by 88 billion cubic feet in the week ended July 11, according to the median of responses from 22 analysts surveyed by Bloomberg News.

Manufacturing in the Philadelphia region shrank in July for an eighth-straight month as orders and employment sank. The Federal Reserve Bank of Philadelphia's general economic index improved to minus 16.3 from minus 17.1 in June, the bank said today. Negative readings signal a decline. The measure averaged 5.1 last year.

The housing recession, now in its third year, has depressed demand for building equipment and materials and hurt consumer spending.

Slowing Growth

China's economic expansion cooled to the slowest pace since 2005 as gross domestic product grew 10.1 percent in the second quarter from a year earlier, down from 10.6 percent in the first quarter, the statistics bureau said today in Beijing.

``I think the demand story is starting to get traction,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``Any sign of a slowdown in China or India will have a major impact on prices. If there are more signs of a BRIC slowdown prices could be headed for $100.''

The so-called BRIC nations of Brazil, Russia, India and China, accounted for almost half of global expansion last year, according to the International Monetary Fund.

Plans by a high-ranking American diplomat to take part in nuclear negotiations with Iran tempered speculation that the U.S. or Israel may attack OPEC's second-biggest oil producer in a dispute over its nuclear program. Concern about a possible attack helped push oil prices to a record last week.

Weekend Talks

Undersecretary of State William Burns will participate in the European Union-Iran talks this weekend in Geneva, State Department spokesman Sean McCormack said yesterday without giving details. This is a shift in the U.S. position on talks with a government it has shunned since 1980.

The U.S. will announce in the next month plans to establish a diplomatic presence in Tehran, the U.K.'s Guardian newspaper reported today, without citing anyone. The administration of President George W. Bush intends to set up a U.S. interests section in Tehran staffed by American diplomats, almost 30 years after severing ties with Iran, the London-based newspaper said.

Brent crude oil for September settlement declined $4.74, or 3.5 percent, to settle at $131.07 a barrel on London's ICE Futures Europe exchange, the lowest close since June 11. Prices climbed to a record $147.50 on July 11.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: July 17, 2008 16:02 EDT