Oil Falls on Demand Outlook
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Oil prices tumbled more than $6 a barrel today, briefly slipping below the $100 level as traders bet that global demand for petroleum products will keep falling despite a planned $700 billion American financial bailout.
A stronger dollar also weighed on crude prices as investors who bought oil and other commodities as a hedge against inflation sold their contracts.
Light, sweet crude for November delivery fell as low as $99.80 a barrel in morning trading on the New York Mercantile Exchange before edging up slightly to $100.28, down $6.61. In London, November Brent crude fell $5.73 to $97.81 a barrel on the ICE Futures exchange.
The contract fell Friday $1.13 to settle at $106.89. Crude has now fallen 31% since surging to an all-time record of $147.27 on July 11.
Today’s sell-off was tied to anxiety over the pending American rescue plan. Following a week of intense negotiations, lawmakers could hold a final vote on the emergency measure Wednesday. But investors are doubtful whether the plan will be enough to unfreeze global credit markets and restore calm to the financial system.
Global credit markets remain extremely tight, crippling companies’ ability to raise capital and cover basic costs like payroll. If the economy weakens further, consumers and businesses around the globe would likely cut back on energy use even more, analysts say.
“The market is clearly questioning whether the bailout will be enough to prevent a stronger economic downturn. That obviously has potentially negative implications for oil demand growth,” the global head of oil research at Societe Generale at London, Michael Wittner, said.
In another sign of declining American demand for fuel, pump prices kept falling today. A gallon of regular slipped about a penny overnight to a new national average of $3.643 (96 cents a liter), according to auto club AAA, the Oil Price Information Service, and Wright Express.
The rescue plan would give the administration broad power to use hundreds of billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.
Congress insisted on a stronger hand in controlling the money than the White House had wanted. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.
Oil prices were also pushed down by a stronger dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation, and sell when the dollar strengthens.
While the dollar gained as details of the bailout package become known, analysts said the euro was weaker also because of growing economic problems in Europe.
“It is also a question of the euro losing ground due to a continued deterioration in the euro zone,” Olivier Jakob, of Petromatrix at Switzerland, said. “With the rate of bank failures increasing in Europe and the economy slowing more rapidly than expected, pressure will continue to mount on the (European Central Bank) to lower (interest) rates.”
The 15-nation euro fell today to $1.4437 from $1.4614 on Friday.
In other Nymex trading, heating oil futures fell 14.51 cents to $2.8732 a gallon, while gasoline futures dropped 15.57 to $2.5094 a gallon. Natural gas futures lost 40.7 cents to $7.221 per 1,000 cubic feet.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.