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Oil prices fall on strengthening dollar, lowered demand forecasts

Oil prices fall on strengthening dollar, lowered demand forecasts

Oil prices fell Tuesday, giving up an earlier advance as the dollar held its gains against the euro and the U.S. government slashed its oil consumption projections.
Light, sweet crude for July delivery fell $3.04 to settle at $131.31 a barrel on the New York Mercantile Exchange while, in London, July Brent crude fell $2.89 to settle at $131.02 on the ICE Futures exchange.
The U.S. Energy Department, in a monthly report, indicated that high prices are cutting oil consumption more than expected in the industrialized world. Consumption is now expected to fall by 240,000 barrels a day in 2008; last month, the department forecast consumption would be unchanged from 2007 levels.
That report calmed a market that earlier sent oil up more than $3 on a projection by the International Energy Agency that said global demand will continue to rise, especially in China.
In volatile trading, investors also latched on to comments by U.S. officials on Monday, when Treasury Secretary Henry Paulson said he would not rule out the possibility of intervening to stabilize the dollar. That comment, and others, prompted selling by investors who had bought commodities such as oil as a hedge against inflation. Also, a stronger dollar makes oil more expensive to investors overseas.
"You don't get a lot of ... additional buying when the dollar is strong," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.
Reports that Saudi Arabia has increased oil output by 500,000 barrels a day this quarter, 200,000 barrels a day more than previously thought, added some pressure to the market. Still, analysts said the Saudi move was only a peripheral factor in Tuesday's price drop.
"A couple hundred thousand barrels just isn't enough," said Ritterbusch.
Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos., said the Saudi news didn't surprise the market.
Meanwhile, the IEA, in its own monthly report, cut its demand growth forecasts, projecting that global demand for petroleum products such as gasoline, diesel and heating oil will grow by 0.9 percent, or 800,000 barrels a day, in 2008. That was down from the 1.2 percent, or 1 million barrels, the IEA forecast earlier this year.
However, the IEA, an energy adviser to Western industrialized nations, also said demand for fuel for reconstruction work in the aftermath of May's earthquake will boost Chinese oil demand by 5.5 percent this year, a slightly higher forecast than in previous reports.
"A 5.5 percent increase in one of the largest consumers of oil in the world is a lot of barrels of oil," Ritterbusch said.
In other Nymex trading, July gasoline futures fell 7.47 cents to settle at $3.3193 a gallon, and July heating oil futures fell 6.46 cents to settle at $3.8124 a gallon. July natural gas futures fell 16.9 cents to settle at $12.435 per 1,000 cubic feet.


Updated : 2021-01-18 06:05 GMT+08:00