Business

Published: Wednesday August 12, 2009 MYT 7:29:00 AM
Updated: Wednesday August 12, 2009 MYT 12:40:59 PM

Oil slump - 4th day of decline(update with Wed trade)


SINGAPORE: Oil prices hovered above $69 a barrel Wednesday in Asia after the U.S. and OPEC said global crude consumption will slump this year as economies struggle to emerge from recession.

Benchmark crude for September delivery was unchanged at $69.45 a barrel by midday in Singapore in electronic trading on the New York Mercantile Exchange.

On Tuesday, the contract fell $1.15 to settle at $69.45.

The Energy Department's Energy Information Administration on Tuesday said global crude demand will likely fall by 1.71 million barrels this year, more than its previous forecast of a drop of 1.56 million barrels.

The Organization of Petroleum Exporting Countries said it expects consumption to slide by 1.65 million barrels a day this year, before rising next year.

Investors have mostly shrugged off dismal demand numbers in recent months, focusing instead on signs the global economy may recover by the end of the year.

"The current fundamentals don't really support the price, but the expectation is the economy will improve and demand will improve," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney.

U.S. crude inventories unexpectedly fell last week, a sign demand could be rebounding.

Inventories dropped 1.4 million barrels last week, the American Petroleum Institute said late Tuesday.

Analysts expected the API numbers to gain 1.2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The EIA reports mandatory supply figures on Wednesday, while the API numbers are reported by refiners voluntarily.

In other Nymex trading, gasoline for September delivery was steady at $2.04 a gallon and heating oil fell 1.07 cents to $1.90.

Natural gas for September delivery gained 3.1 cents to $3.51 per 1,000 cubic feet. In London, Brent prices fell 16 cents to $72.30 a barrel on the ICE Futures exchange. - AP

Earlier report

NEW YORK: Energy prices slumped Tuesday on a Labor Department report that suggested consumer spending, a major economic driver, may be depressed for some time as companies cut back.

Benchmark crude for September delivery fell $1.15 to settle at $69.45 a barrel on the New York Mercantile Exchange.

It was the fourth straight day of declines and the first time this month that the price for crude dipped below $69.

Oil prices have ended the week higher for five straight weeks, a period that coincides with earnings reports from U.S. companies.

The results appeared surprisingly healthy, which gave energy prices a boost on the belief that the recession has loosened its grip.

While that may be true, data from the Labor Department Tuesday again showed that company profits were in many cases buoyed by less spending on employee pay.

The Labor Department reported that productivity, the amount of output per hour of work, rose at an annual rate of 6.4 percent in the April-June quarter.

In normal economic times companies might pay more for workers and increase production.

Yet companies during the recession have instead frozen hiring and cut hours to prop up profits.

If workers are not getting the hours they need, the pullback on spending for everything from gasoline to products made from petroleum, will likely remain depressed.

That has already happened this year. The Energy Information Administration in its short-term energy outlook Tuesday said U.S. consumption of liquid fuels will fall by 4.1 percent this year.

The falloff in gasoline sales has been tempered somewhat because it's become so cheap compared with past years.

Crude prices rose early in the day on reports from China that the nation's exports, retail sales and factory output improved in July, and the country imported a record 4.6 million barrels of fuel a day last month.

The market reversed course when the Labor Department released its report and oil prices fell 2 percent.

The monthly forecast by the Organization of Petroleum Exporting Countries also may have helped pushed energy prices down. OPEC - responsible for about a third of the world's crude production - said it expected demand to fall by 1.65 million barrels a day this year, compared with last year, before rising in 2010.

The Federal Reserve on Tuesday begins a two-day meeting that could shed more light on the U.S. economy.

An interest-rate hike is highly unlikely, but people want to hear what the Fed will say about the state of the economy, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"By and large, we're just taking a little of this economic optimism out of the market right now and responding to the possibility that we're going to see a more stable currency environment going forward," he said.

The falling dollar has helped push crude prices up because oil is priced in the U.S. currency.

The EIA predicted Tuesday that gas prices will average around $2.34 per gallon in 2009.

In other Nymex trading, gasoline for September delivery gained 1.38 cents to settle at $2.9422 a gallon and heating oil fell 1.59 cents to settle at $1.9117.

Natural gas for September delivery fell 10 cents to settle at $3.541 per 1,000 cubic feet.

In London, Brent prices fell $1.04 to settle at $72.46 a barrel on the ICE Futures exchange. - AP


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