Aug. 10 (Bloomberg) -- Crude oil fell and gasoline plunged the most since September on speculation fuel demand will slow after U.K. authorities arrested 21 men planning to blow up airplanes heading to the U.S. from Britain.

The risk of attacks may cut travel and consumer spending, curbing economic growth. In the three months after the Sept. 11 assault, oil fell 35 percent. Prices also dropped today after BP Plc, the world's third-largest oil company by market value, said it may keep part of the Prudhoe Bay oil field open. Oil surged on Aug. 7 when the company said it would shut all operations.

``The terror threats may be a drag on economic activity,'' said John Kilduff, vice president of risk management at Fimat USA in New York. ``This should put a chill on travel and result in less of a call for oil. Consumer confidence may fall, stalling global growth.''

Crude oil for September delivery fell $2.35, or 3.1 percent, to $74 a barrel on the New York Mercantile Exchange, the lowest close since July 28. It was the biggest decline since May 15. Prices are up 14 percent from a year ago.

Concern that the conflict between Israel and Hezbollah might spread in the Middle East, source of almost a third of world supply, pushed oil to a record $78.40 a barrel on July 14. Israel's government said it will give the United Nations more time to negotiate an end to fighting before sending troops deeper into Lebanon.

Gasoline for September delivery tumbled 18.33 cents, or 8.4 percent, to $1.9889 a gallon in New York, the biggest drop since Sept. 2. It was the lowest close since April 7. Prices are up 4.9 percent from a year earlier.

Peak Gasoline Demand

U.S. gasoline consumption peaks between the Memorial Day holiday in May and Labor Day in early September when vacationers take to the highways.

``You are seeing a shift away from gasoline to other markets as we get to the latter part of the driving season,'' said Tom Bentz, an oil broker with BNP Paribas Commodity Futures Inc. in New York. ``We've made it this far with decent inventories on hand, which has eased worries.''

Gasoline stockpiles fell 3.2 million barrels to 207.7 million last week, leaving inventories unchanged from the five- year average, according to the Energy Department report yesterday. Crude oil supplies dropped 1.1 million barrels to 332.6 million, leaving stockpiles 10 percent above average.

``Overall inventories are still really high, even with the declines of the past week,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``Prices will move higher if we get any actual supply disruption. We are also in the midst of hurricane season.''

The Atlantic hurricane season lasts from June through November and threatens oil facilities along the Gulf of Mexico coast.

Nigerian Oil

Royal Dutch Shell Plc's Nigeria venture began pumping oil at a pipeline that was damaged last month, spokeswoman Caroline Wittgen said. A leak was detected July 21, shutting in 180,000 barrels a day. Nigeria accounts for about 10 percent of crude oil imports to the U.S., where refiners favor its low-sulfur grades because of their high gasoline yield.

``The return of the Nigerian pipeline is adding to the downward pressure on prices because the country's Bonny Light crude oil is a preferred grade for gasoline production,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

Reduced Travel

Heathrow, Europe's busiest airport, canceled incoming flights and air traffic was disrupted throughout the region. U.K. authorities arrested 21 people overnight, Deputy Metropolitan Police Commissioner Paul Stephenson said.

``After Sept. 11 there was a short-term increase in prices,'' said Bill O'Grady, an analyst with AG Edwards & Sons in St. Louis. ``Once it became clear that the attack would reduce travel, the oil market had the tar knocked out of it. This is a similar situation.''

The U.K. and U.S. today raised threat levels, with Britain assigning a ``critical'' designation, the highest category on a five-point scale, indicating an attack is expected ``imminently,'' according to the Home Office Web site.

BP expects to know by the start of next week whether it can keep operating the western half of Prudhoe Bay. The eastern side was shut on Aug. 8 after a pipeline leak and corrosion were found. About 120,000 barrels a day are still being pumped from the western side. The field produces 400,000 barrels a day, or 8 percent of U.S. output, when it is fully operational.

Bob Malone, chairman and president of BP America said earlier today that the company expected to know tomorrow if it can keep producing 200,000 barrels a day in the western half of the field. Malone said he doesn't expect any refinery outages to result from BP's decision to shut the field.

OPEC Oil

The Organization of Petroleum Exporting Countries said its members are prepared to bring additional oil supplies to the market, if needed, after the Alaska closure. Saudi Arabia and some other OPEC countries have similar grades to those produced at Prudhoe Bay.

Brent crude oil for September settlement fell $2, or 2.6 percent, to close at $75.28 a barrel on the London-based ICE Futures exchange. Brent touched $78.64 a barrel on Aug. 7, the highest since trading began in 1988.

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

Last Updated: August 10, 2006 15:40 EDT