[OIL PRICES] Oil resumes downward streak on demand worries
Oil prices tumbled more than $3 a barrel today, falling to their lowest level in seven weeks as the perception that record prices are eroding the world's thirst for energy sparked another dramatic sell-off.
The drop was a throwback to oil's nosedive over the past two weeks and outweighed supply concerns touched off by a militant attack Monday on two Nigerian crude pipelines. It was oil's seventh decline in the last 10 sessions.
Light, sweet crude for September delivery fell $3.36, or 2.69 percent, to $121.37 a barrel in early afternoon trading on the New York Mercantile Exchange. Earlier, prices fell more than $4 a barrel to $120.42, the lowest level for a front-month contract since June 10; they have now fallen more than $25 from their trading high of $147.27, reached July 11.
Prices rose $1.47 on Monday to settle at $124.73 a barrel.
More concerns that crude's run-up over the past year has pushed prices to unsustainable levels fed Monday's decline. The U.S. Transportation Department said Monday that U.S. drivers logged 9.6 billion fewer vehicle miles in May — or 3.7 percent — compared to the same period last year, the biggest drop ever for the historically busy summer driving month.
And demand for oil in the U.S. — the world's thirstiest consumer — continues to fall, dropping by 891,000 barrels per day in May compared the same month a year ago, the Energy Department's Energy Information Administration said Monday.
"We're seeing both statistical and anecdotal evidence of very rapidly weakening demand picture," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "I think we could see $117 a barrel in a one-week time frame, and this market could eventually get to $100."
Also weighing on prices was a sharply stronger dollar compared to the euro, which made commodities less attractive to investors who have bought oil futures as a hedge against inflation and weakness in the U.S. currency.
The euro bought $1.5579 compared with $1.5752 late Monday in New York.
"It looks like oil is selling off today with the very, very strong dollar and nothing to drive it higher. Quiet seems to be bearish these days," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service in Wall, N.J.
In a further sign high prices are curbing Americans' consumption for fuel, retail gas prices fell further below the $4-a-gallon mark. The average price of a regular gas fell 1.7 cents to $3.941, according to auto club AAA, the Oil Prices Information Service and Wright Express.
Monday's attack in Nigeria targeted two pipelines believed to be owned by a unit of Royal Dutch Shell PLC and was the latest in a two-year campaign of attacks on the country's oil industry. Shell said a pipeline had been damaged in attacks and that some crude production had been shut down to prevent the oil from spilling into the environment.
The oil company said today it may not be able to fulfill some oil-export contracts because of the damage. Shell didn't specify how much oil production was cut by the attack or how long repairs would take.
"These attacks have of course happened in the past and caused temporary disruptions and so that's what the market expects — it's been factored in," said Victor Shum, an energy analyst with consulting firm Purvin & Gertz in Singapore.
The Movement for the Emancipation of the Niger Delta says it is acting to force the Nigerian federal government to send more oil industry funds to the southern region, which produces all of Nigeria's crude oil but remains impoverished after decades of corrupt and wasteful governance.
Analysts at JBC Energy in Vienna, Austria, estimated the repeated attacks on country's oil installations, Nigeria's output had fallen to just below 1.9 million barrels a day from more than 2.4 million barrels a day in 2005.
Oil market analysts are awaiting U.S. data later in the week for indications of how the world's largest economy could be expected to perform in coming months. Figures for gross domestic product for the second quarter will be released Thursday, while July auto sales and the July employment report are both due Friday.
In other Nymex trading, heating oil futures fell 9.54 cents to $3.4666 a gallon while gasoline prices fell 8.05 cents to $2.9895 a gallon. Natural gas futures lost 6.9 cents to $9.094 per 1,000 cubic feet.
In London, September Brent crude lost $3.35 to $122.48 a barrel on the ICE Futures exchange.