Oil Prices Down on Lower Demand

By Jason Simpkins

Crude oil prices slipped below $119 a barrel on the New York Mercantile Exchange Monday for the first time in three months as tropical storm Edouard veered away from energy facilities in the Gulf of Mexico, and a government survey that revealed U.S. consumer spending flagged in June.

Light, sweet crude for September delivery tumbled $3.69 to settle at $121.41 a barrel yesterday, after earlier dropping below $119 a barrel for the first time since May.

Part of the reason for the decline was that tropical storm Edouard lost strength and turned westward to miss vital oil facilities in the Gulf of Mexico, but declining demand is probably the biggest figure in oil’s slump. Crude fell 11% in July after more than doubling in price over the 12 months prior.

"The fact that we’re lower seems to speak volumes about how (falling) demand has moved into the top place in this market," Peter Beutel, oil analyst with Cameron Hanover, told CNNMoney.

A report from the Commerce Department yesterday showed consumer spending, adjusted for inflation, actually declined 0.2% in June, an indication that demand may further slacken. The Commerce Department said nominal spending grew 0.6% on the month, but the increase was all due to higher prices, which spiked 0.8%, the most for a month since 1981.

Overall, "the market remains bearish, both fundamentally and from [speculative] traders exiting positions," Darin Newsom, a senior analyst at DTN, told MarketWatch. "Support is at about every $20, with initial support at last week’s low of $120.40 (roughly) and then between $102 and $98."

The next stop is probably $100 "but will take some time to get there," he said.

Original Post

Comments

[Muzie]

"on lower demand"...

Oh really? If you look at activity on USO you'll see the entire drop was concentraded in one minute today. Did demand disappear all inside that one minute?

I'm neither bullish or bearish on oil - but to say oil dropped on "lower demand" where the price action shows every sign of a small number of larger sellers going out of market at the same instant doesn't strike me as vey logical.

Oil does what oil does, and you could write novels trying to guess what caused every little spike or plunge.

I'm fascinated by how everybody seems absolutely convinced oil is going down.. but nobody's shorting, since if that'd be the case we'd already be at 80$/barrel.

Disclosure: neither long or short oil.

[Ernie Montague]

I have little doubt we will continue to see massive swings in oil. Last week's gas figures showed increased consumption, which almost certainly was brought on by lower prices. And the lower they go, the more people will pick up their driving.

[Alan von Altendorf]

Are bureaucrats and defense contractors driving less? Ambulances, cops, garbage trucks? Army, Navy, Marines, Air Force, Halliburton? Politicians and campaign aides? How about 18-wheelers that deliver food to grocery stores, gas to the gas stations?

I accept that some discretionary summer travel has been cut, esp. air travel. But refined product demand is inelastic. Compelled to speculate, I'd say war risk was cut $10 yesterday on news chatter that Bush Admin might open a US-staffed American Interests office in Tehran. Could be disinformation. A cheery head fake.

[mangolfer]

Nobody's shorting? That's good I guess, I bought DUG 3 weeks ago and making a fortune.

[john s. gordon]

clearly market manipulation continues to occur.
> jack