Oil Prices Keep Dropping On Demand Worries

Continuing Slide Has Gasoline Prices Down As Well; Dollar Makes Slight Gain Against Euro

(CBS/ AP)  Oil traders sent crude prices tumbling as low as $118 a barrel 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 oil finished the day just above $119 a barrel - its lowest settlement price since early May. Oil has now fallen nearly 20 percent in less than a month, reports CBS News correspondent Anthony Mason.

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, the lowest close since May 2. During trading, the contract dipped to $118 - nearly $30 below the trading high of $147.27 reached July 11.

In London, September Brent crude fell $2.98 to settle at $117.70 a barrel.

"The market psychology has finally shifted," said Stephen Schork, an analyst and trader in Villanova, Pennsylvania, adding that "$4-a-gallon gasoline has clearly killed demand."

Americans drove nearly ten billion fewer miles this May than they did in May of last year, Mason reports. For 15 straight weeks now we've pumped less gasoline than we did a year ago.

In Howard County, Md., the police department has just ordered its officers to cut their driving by 5 percent.

"Just like people tightening their belts, their families, with the economy, with gas prices the county government's got to do the same thing," Howard County executive Ken Uhlman told Mason.

After hitting a high of $4.11 a gallon in July, gas has fallen nearly a quarter in less than 3 weeks, reports Mason. That could accelerate, says trader Phil Flynn, now that the psychology in the oil market has made a u-turn.

"We could see a freefall. We could see this market fall as fast as it rose. Maybe even faster. So if we keep our fingers crossed, maybe we'll be talking about $3 gasoline again. And we could be talking about $90 crude," Flynn said.

But 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 trading. 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, Oklahoma, 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 said.

Investors on Tuesday ignored continued tension over Iran's nuclear program. 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.

[850Rick]

Demand worries by who exactly? Traders? Big deal. Charge people $4+ gallon and of course demand will drop as it should, and I hope it drops all the way back to $1.50 gallon.

[beehive21-2009]

The people of the USA, have decided to stop,oil usage,they''re on bikes, scooters,walking,, surpass last months.What can we sub for all the oil products we use?

[venkata4--2008]

Omm, is this similar happening like the gas price at the pump went down 3 months before elections ?

[supermom53-2009]

Hey guys, Bush''s family are oil people and oil people are greedy. We have enough oil resources in this country alone to last us 200 years! Remember what was done in the ''70s? How they released oil from the reserves we have stored in this country? The price of gas went down quite rapidly. Why can''t they do that again? Did you know that the Alaskan pipeline is used to send oil to China? China! Now that is wrong. Congress should not be allowed to take a 5-week vacation without solving our energy problem. Even McCain has said that.

[erichsh]

I was just in Europe and would you believe they have cars that use a commonly available fuel, that allows them to get 50 miles a gallon and more. This technology is called diesel.

Posted by kennedy7955

I dunno, I remember the old VW Rabbit and Mercedes diesels and was put off by them. Besides, diesel costs almost a buck more/gallon than gasoline, for some reason. It didn''t used to.

[tangula-2009]

After putting a windfall into their pocket, the wall street back off a little. It%u2019s a talented move because if you go to extreme, it could backfire. Now as a large part of their loss incurred by subprime crisis having been paid by people all around world, especially those in the developing world, it%u2019s time to pull back a little. Because the main street of America also has suffered and it could turn to the Bush government for reasoning the ordinary household losses. It%u2019s could be very risky if it does happen. Anyway the result is the world more polarized: the rich is being richer and the poor is being poorer. The U.N. target of eliminating poverty around the world could be delayed because of the selfishness of the America. We have seen the failure of the latest round of negotiation in WTO and that may be just the beginning. It%u2019s sad that people around the world may become more incooperative, at least in the near future.

[kennedy7955]

I was just in Europe and would you believe they have cars that use a commonly available fuel, that allows them to get 50 miles a gallon and more. This technology is called diesel. We should phase out gasoline altogether and use diesel. By the way, diesel cars now run very clean so don''t reply that they are pollution problems.

[kennedy7955]

High gas prices are having a positive effect in conservation and provided a financial incentive to alternative energy. Now if only the congress would create an energy policy. We should have solar panels on every roof, wave farms, wind farms and nuclear power plants being built as fast as possible.

[kennedy7955]

mycomment
I am in Thailand. The price of gas has been effected all over the world becaude of the deevaluation of the dollar. So yes the people who really run the country want to see the people they want running the country left in power. So now thy throw a few crumbs to the working class. Where were they and what were they doing when the economy has been going to hell for the past several months. They figure how much the American public will put up with and then back off a little.
Posted by patriot12436"

Good post, you are exactly right.

[erichsh]

itgrammy, your own post illustrated a prime reason for the recent price drops. Supply and demand! If something (even gasoline) gets too expensive, people will buy less of it. That lowers demand, therefore increasing supply. The problem is admittedly compounded by speculators who run up the price of oil by buying futures on expectation that oil prices will continue to climb. But even they can get burned when demand suddenly drops, and they''re left holding the bag on futures contracts that are suddenly worth less than what they paid. Serves them right.

[itgranny]

I can''t help but wonder if this is all a farce the oil people can use to help put/keep their people in office for the elections. It gives the illusion that they are doing something to help out the regular guy. As soon as the election is over, it''s going to go right back up again.

Another thing, they''re quoting a 5% reduction. That seems pretty low. I live in rural minn. and people arent'' driving those big suv''s and trucks like they used to. Normally busy Roads are deserted after 7pm on weekdays. Even weekends don''t see as much traffic. People are vacationing much closer to home.

One very good thing about the high gas price, people used to drive 60 miles one way a couple times a week to buy groceries etc, in the bigger town, now are frequenting our small town hardware and grocery stores who were struggling. While they say 5 percent, i''m having a hard time believing it. I kind of wonder if they gov isn''t buying up even more to fill reserves at the highest price possible on the tax payer''s dime.

[kennedy7955]

Oil prices are going down because the manipulators of oil prices are losing money as it adversely affects the economy.

[erichsh]

Now the grandstanding republicans who are speaking to an empty chamber so they can hear their own bloaviating voices are taking credit for the fall in gas prices...

Posted by nuffera

Jeezus! You **** at Republicans when the price goes up, then you **** at them when it goes down. Every last one of you! This conspiracy shiit gets old - Bush is getting rich (prove it, conspiracy nuts!), Repubs do this, do that, it''s all their fault... meanwhile Pelosi is "trying to save the world" (her own words!) by refusing to allow any domestic offshore oil drilling, and the Democratic Congress bails out of town rather than do ANYTHING about domestic energy policy.

[imprisonkarl]

Once again, the MSM seems to have a convenient bout of selected amnesia.

The price of oil started dropping when Mexico announced it was locking in its price per barrel at $140 a few weeks ago. Mex City was betting that prices wouldn''t go much beyond $140 a barrel, so they made their move. Prices have been falling ever since.

Plus the fact that Big Oil traditionally manipulates the price at the pump when there''s an upcoming election, to ensure "their people" get in. It happened in 2004 and it''s happening again.

And the sheeple fall for the bulls#*t explanation put out by Big Oil & their media shills everytime.

[hunterdon6]

The price of crude oil goes down, but the price at the pump stays high. It takes time. But if the price of crude goes up, the price at the pump goes up the next day. The price of gas should be $3 a gallon now and should be getting cheaper.

[marcpcbs]

One of the most powerful ways to bring down gas prices I can think of is to buy as little gas as you possibly can.

I know everyone has to get to work and back but I mean for a month or three, drive nowhere. use a bike or walk. I ride my bike into town for shopping, pick up my mail, movies and to see friends and the tavern.

Let the oil companies keep their oil.

[patriot12436]

commonsense1
Nixon didn''t have major stock in oil wells and refineries. Bush has become more rich many times over because of the price of oil. Doesn''t matter what an idiot he is and he couldn''t care less what anyone thinks of him.

[patriot12436]

mycomment
I am in Thailand. The price of gas has been effected all over the world becaude of the deevaluation of the dollar. So yes the people who really run the country want to see the people they want running the country left in power. So now thy throw a few crumbs to the working class. Where were they and what were they doing when the economy has been going to hell for the past several months. They figure how much the American public will put up with and then back off a little.

[patriot12436]

labrat9999
To tell you you would be better off would insult your intelligence. I don''t think anything could be worse that bush. However obama really hasn''t taken a stand on anything so we don''t know what he will do. His past associations with racial groups and people i think say much. I think he will definately try to favor blacks and has talked about much aid to Africa. We can no longer afford to support the rest of the world. He has a cousin who is a terrorist trying to overthrow the govt where he lives in Africa. McCain may not be th brightest crayon in the box but i think he has shown his loyalty to his country. His wife has shown her involvement in international projects. What has Michelle done except meet with black radicals and bad mouth white America for keeping blacks down. If obama wins i can see our country headed for a race war. We cannot afford a civil war or anything that will tear our country down further. Worst case scenario is that he does plan to sell us out to the terrorists. So many he said he could never throw under the bus and he did. I just cannot trust this man.

[mycomment-2009]

I think it is part of bushs plan o make republicans look better begore the election.
Posted by patriot12436 at 06:54 AM : Aug 06, 2008

This is absolutely hilarious! So the price of oil FOR THE ENTIRE WORLD is totally at the whim and mercy of one man....wow!