Margot Habiby – “Oil Tumbles More Than $6 as Slowing Economy Threatens Demand”

Oil Tumbles More Than $6 as Slowing Economy Threatens Demand

Margot Habiby | July 15, 2008

Crude oil tumbled more than $6 a barrel in New York amid concern that a slower U.S. economy will curtail demand.

Prices dropped as Federal Reserve Chairman Ben S. Bernanke said risks to growth and inflation have risen, in testimony to the Senate Banking Committee. He abandoned a June assessment that the threat of an economic slowdown had diminished.

“We’re getting to the point where the market’s looking at an increasing likelihood of a deep recession,” said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

Crude oil for August delivery fell $6.44, or 4.4 percent, to settle at $138.74 a barrel at 2:49 p.m. on the New York Mercantile Exchange. It was the biggest percentage drop since March and the biggest dollar decline since Jan. 17, 1991, when futures closed at $21.44 a barrel. Oil fell as much as $9.26 to $135.92 today.

Futures reached a record $147.27 a barrel on July 11 and have risen 88 percent in the past year.

“When it traded below $140, a big wave of selling hit,” said Addison Armstrong, director of market research at TFS Energy LLS in Stamford, Connecticut. “The market was trading a little bit above $140, and when it traded below, it fell something like $2 in a minute. Nothing seemed to hold it. There seems to be a bit of a panic.”

U.S. gasoline demand fell 5.2 percent last week, the 12th consecutive weekly decline, a sign record pump prices are changing driving habits, a MasterCard Inc. report showed today. Gasoline futures fell 17.29 cents, or 4.9 percent, to $3.3848 a gallon in New York.

The profit margin, or crack spread, for making three barrels of crude into one of heating oil and two of gasoline, reached its lowest since March 19, based on futures prices. The crack spread fell 40.32 cents to $10.9410 a barrel.

OPEC Demand

The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world’s oil, said it expects demand for its members’ crude will fall in 2009 as the global economy slows. Demand for OPEC crude next year will average 31.2 million barrels a day, a drop of 710,000 barrels a day from the forecast for 2008, the group said in its monthly oil market report today.

“The whole U.S. economic scene is sort of being questioned and obviously that would say something about the demand for oil,” said Paul Tossetti, director of oil market analysis at PFC Energy in Washington. “Economic worries have completely pushed out of the way this weaker U.S. dollar.”

Economy Versus Dollar

Earlier, oil rose amid an expectation that the dollar’s drop against the euro would boost the appeal of crude as a currency hedge.

The dollar fell to an all-time low of $1.6038 per euro in London from $1.5908 yesterday. The rising appeal of commodities caused by the declining value of the dollar has outweighed concern that an economic slowdown in developed countries will cut demand for oil.

President George W. Bush said this morning that there will continue to be “upward pressure on price” until more supply is brought to the market. He called on Congress to follow his lead and lift a moratorium on oil and gas drilling on the U.S. outer continental shelf, a move that is being resisted by the Democratic majorities in the House and Senate.

Also pressuring prices, Petroleo Brasileiro SA, Brazil’s state-controlled oil company known as Petrobras, said it resumed normal crude production at the Campos Basin after a strike that began yesterday.

The U.S. National Hurricane Center said today that a low- pressure system in the Atlantic Ocean is less likely to develop into a stronger storm known as a tropical depression, which can be a precursor to a hurricane.

Storm Threat

The system, which traders were tracking yesterday as a possible threat to Gulf of Mexico output, has conditions “only marginally favorable for development” into a tropical depression, according to an advisory at 2 p.m. New York time.

Royal Dutch Shell Plc, Europe’s biggest oil company, ended a force majeure on exports of Nigerian Bonny Light crude. Force majeure is a legal clause that allows producers to miss deliveries because of circumstances beyond their control. The clause was imposed after attacks on a crude-oil installation in May. The Movement for the Emancipation of the Niger Delta, or MEND, claimed responsibility.

Brent crude oil for August settlement fell $5.17, or 3.6 percent, to $138.75 a barrel on London’s ICE Futures Europe exchange, after touching $134.96 a barrel. The August contract, which expires tomorrow, reached a record $147.50 on July 11. The more widely held September contract dropped $5.47, or 3.8 percent, to $139.86 a barrel. It touched $136.20.

“It’s time for everyone to reassess where this market is headed and whether the try for $150 is worth the risk,” Tim Evans, an energy analyst for Citi Futures Perspective in New York, said in an e-mail. “Today’s answer is no!”


U.S. oil supplies probably fell last week as record prices discouraged buying by refiners. Supplies probably declined 2.2 million barrels in the week ended July 11 from 293.9 million the week before, according to the median of 10 responses by analysts surveyed before an Energy Department report tomorrow.

Gasoline stockpiles probably lost 100,000 barrels from 211.8 million barrels the week before, the survey showed. Distillate fuel, including heating oil and diesel, probably rose 2 million barrels from 122.5 million barrels the week before.

Published in: on July 15, 2008 at 10:05 PM  Leave a Comment  

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