NEW YORK (Dow Jones/AP) – Oil prices dropped below $49 a barrel Thursday for the first time since September amid reports that Palestinian leader Yasser Arafat had died.

The reports, later denied by doctors treating Arafat at a French military hospital, nevertheless deepened a sell-off.

Because Arafat is widely seen as an obstacle to Mideast peace, reports of his death sparked hopes of increased stability in the oil-rich region, said oil analyst Fadel Gheit.

“Oil prices move more on psychology than market fundamentals,” he said. “Anything that gives the perception that things will improve in the Middle East will ease prices.”

At the Nymex, December crude futures fell $2.06 to finish at $48.82 a barrel, the lowest for a front-month contract since Sept. 29.

•Related report, B8

On London’s International Petroleum Exchange, December fell $1.55 to close at $46.01 a barrel.

Petroleum products sold off sharply, with December heating oil futures falling 5.17 cents to $1.3721 a gallon, and December gasoline futures plunging 5.03 cents to finish at $1.2774 a gallon.

December natural gas futures dropped 55.3 cents to close at $8.199 per million British thermal units after the Energy Information Administration reported that natural gas storage rose to the highest level on record last week.

The sell off in oil futures comes a day after the EIA reported a much-larger-than expected build in U.S. commercial stocks of crude oil.

Meanwhile, gold futures on the Comex division of the New York Mercantile Exchange charged to seven-month highs, as renewed weakness in the U.S. dollar coupled with a brightening technical pattern rekindled speculative and investor interest.

The most-active December contract settled $5.40 higher at $430.80 per ounce.

Among other commodities, cotton futures settled sharply lower as market players continued to roll their December positions into March.

December settled 1.21 cents lower at 43.37 cents a pound on the New York Board of Trade. The contract dropped at the open and hit near a three-month low at 43.10 cents a pound.

Cocoa futures shot to a two-month high, after violence broke out in top-producer Ivory Coast as the government dropped bombs on the largest city in the rebel-held north.

The psychological impact of the unrest caused cocoa futures to jump higher at the open and run to a two-month high of $1,570 a metric ton.

December settled near the high at $1,568 a metric ton, up $108 on the day on the NYBOT.

World raw sugar futures bounced off six-week lows on the NYBOT Thursday after the market opened stronger than expected and held onto most of its gains.

March settled 0.08 cents higher at 8.43 cents a pound while May rose 0.06 cents to 8.57 cents a pound.

As for coffee, December Arabica coffee futures closed up 0.75 cents at 77.90 cents, and March rose 0.70 cents to 80.90 cents.

AP-ES-11-04-04 1722EST