Oil falls on concerns about economy and demand


OIL fell to its lowest level in five weeks yesterday as more signs of a slowing US economy raised concerns about demand for everything from gasoline to natural gas used to cool homes.

Benchmark West Texas Intermediate crude dropped US$2.16, or 2.3 percent, to US$91.63 a barrel in afternoon trading on the New York Mercantile Exchange. In London, Brent crude fell US$3.16 at US$113.30 per barrel on the ICE Futures exchange.

Economic data released yesterday showed fewer US factory orders, a slowdown in the service industry and rising supplies of crude and gasoline. That's pushing down the price of oil.

"Traders are fixated on a weakening economy and all the talk of austerity seems to be driving home a message of lower consumption," energy consultants Cameron Hanover wrote in a note to clients. "It is not just here, either. Economic data from the euro-zone, China, Japan and the US all seem to be disappointing."

"I think a lot of people are pulling back and exiting high-risk type areas despite the fact that you can't get much out of CDs or other fixed-income-type instruments," energy analyst Jim Ritterbusch said. "They're just looking for safety, and it's just sticking the money in the mattress so to speak."

The Institute for Supply Management said the service industry, which employs nearly 90 percent of the country's work force, in July experienced its weakest growth in 17 months. The trade group's index covers a range of companies in health care, retail, financial services and other areas.

The Commerce Department said factory orders fell 0.8 percent in June. It's the second time in three months that demand has weakened.

And the Energy Department said supplies of crude oil, gasoline and distillates - which include heating oil and diesel - rose last week.

Wholesale demand for gasoline over the four weeks ended July 29 - the traditional height of the heavy summer driving season - was 3.6 percent lower than a year earlier, averaging early 9.1 million barrels a day.

The weekly report on retail gas consumption from MasterCard SpendingPulse showed demand was down for the 19th straight week.

"While gasoline can be a reflection of economic activity and outlooks, it can also be a leading indicator," Cameron Hanover said. "If that is the case here, it is not a pretty picture."

Prices at the pump were virtually unchanged yesterday, at a national average of US$3.701 a gallon (3.8 liters), according to AAA, Wright Express and the Oil Price Information Service. That's almost 98 cents more than a year ago.

Ritterbusch said he expects the price to fall by about a nickel by the end of next week as gasoline futures decline.

In other Nymex trading for September contracts, heating oil fell 6 cents to US$3.0294 per gallon, gasoline futures lost 10 cents at US$2.9338 per gallon and natural gas dropped 7 cents to US$4.087 per 1,000 cubic feet.

Source:Shanghai Daily

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