NEW YORK (AP) - Oil traders sent crude prices tumbling as low as
$118 Tuesday on the growing belief that a U.S. economic slowdown
and high energy costs are curbing consumer demand for gasoline and
other petroleum products.
Crude's decline is giving Americans more relief at the pump.
A gallon of regular gasoline on average fell another penny overnight
to $3.871, according to auto club AAA, the Oil Price Information
Service and Wright Express.
Gas prices have fallen four straight weeks for the first time since December; prices are off 5.9 percent from their July high as U.S. motorists cut back on their driving to save money.
A day after plunging as much as $5 a barrel in a dramatic
sell-off, crude continued its downward trend.
Gasoline and heating oil prices also fell, while natural gas ended unchanged after Monday's steep drop.
Light, sweet crude for September delivery fell $2.24 to settle
at $119.17 a barrel on the New York Mercantile Exchange, after
dipping earlier to $118 - the lowest level since May 5, and nearly
$30 below the trading high of $147.27 reached July 11.
"The market psychology has finally shifted," said Stephen
Schork, an analyst and trader in Villanova, Pa., adding that
"$4-a-gallon gasoline has clearly killed demand."
Some analysts say oil has the potential to jump back up.
There are many factors that could keep oil from descending
further, said Mike Fitzpatrick, vice president of energy and risk
management at MF Global LLC.
Those include political tensions in Nigeria and the Middle East, the potential for a big hurricane along the Gulf Coast, and global demand that is still growing - just not at the same pace that it had been.
"Even if it seems as though China's economic demand run has
slowed some, those changes at the margins still make them a huge
consumer of crude products," Fitzpatrick said.
Still, the Federal Reserve, which issued an economic assessment
statement along with its decision to keep interest rates stable,
said that along with tight credit and the housing contraction,
"elevated energy prices are likely to weigh on economic growth
over the next few quarters."
The dollar's six-week highs against the euro also contributed to
oil's decline Tuesday.
The euro fell to $1.5464 from the $1.5587 it bought late in New York trading Monday, making oil and other commodities less attractive to investors seeking a hedge against inflation and dollar weakness.
Natural gas futures finished unchanged at $8.726 per 1,000 cubic
feet, after swinging into positive and negative territory during
On Monday, natural gas plunged 66.3 cents, or 7 percent, to $8.726 per 1,000 cubic feet, its lowest level in nearly six months.
Prices have closed lower in eight of the last 11 sessions and dropped 36 percent from the contract's all-time trading high of $13.752, reached July 2.
The pullback is double the size of crude's recent slide.
That has fed speculation on Wall Street that a large hedge fund or
something like it may be near collapse and has dumped a vast amount
of natural gas contracts to free up cash.
Last month, SemGroup LP, based in Tulsa, Okla., folded after losing $2.4 billion in bad bets on oil futures.
SemGroup's collapse came amid a massive sell off in the oil market.
"Anytime you get that kind of violent price action in a short
amount of time, it reeks of someone big being in trouble," Schork
Meanwhile, investors ignored continued tension over Iran's
Representatives of the five permanent members of the U.N. Security Council and Germany agreed Monday to seek new sanctions against Iran after the country failed to meet a weekend deadline to respond to an offer intended to defuse the dispute, State Department spokesman Gonzalo Gallegos said.
In other Nymex trading, heating oil futures fell 6.81 cents to
settle at $3.2820 a gallon, while gasoline prices dropped 4.38
cents to settle at $2.9564 a gallon.
In London, September Brent crude fell $2.98 to settle at $117.70
Associated Press writers Stevenson Jacobs in New York, Pablo
Gorondi in Budapest, Hungary and Alex Kennedy in Singapore
contributed to this report.
(Copyright 2008 by The Associated Press. All Rights Reserved.)