Oil Prices Hit Six-Week Low, Settling Near $128
Oil prices fell to a six-week low on Tuesday amid concerns over sliding U.S. energy demand and expectations that a tropical storm pushing through the Gulf of Mexico would spare most offshore oil production.
The losses extend a decline from the July 11 peak above $147 a barrel that has marked the steepest price fall in dollar terms in oil's history—leading some analysts to question how soon the market will resume its six-year rally.
"We've now seen more than a $20 decline in the crude oil market from the highs and this suggests that we've seen enough of a shift in the supply and demand balance on a larger scale to cap the market," said Tim Evans, energy analyst for Citi Futures Perspective in New York.
U.S. crude futures fell $3.09 to settle at $127.95 a barrel after dipping as low as $125.63—the lowest level since early June. London Brent crude fell $3.06 to settle at $129.55 a barrel.
Dealers said mounting economic trouble in the United States and continued lackluster energy demand from the world's biggest consumer nation were the key focuses of oil's slide.
Gasoline consumption in the United States is running about 2.2 percent below year-ago levels in a sign drivers stunned by soaring pump prices are curbing their road travel, according to a MasterCard survey released on Tuesday.
Even so, oil remains nearly 30 percent higher than at the start of this year, and more than six times higher than in 2002, in a rally driven by startling growth in China and other developing Asian economies.
Oil traders and analysts added that Tropical Storm Dolly, moving through the western Gulf of Mexico on a path toward the Texas-Mexico border, was unlikely to seriously disrupt the region's oil production.
The U.S. Minerals Management Service said on Tuesday just 5 percent of the Gulf of Mexico's oil and natural gas production has been shut as a result of the storm and dealers said they expected that production to come back on line quickly.
"The Dolly storm premium is being taken out of the market," said Phil Flynn, analyst at Alaron Trading in Chicago.
Hurricanes in 2005 temporarily knocked out all of the Gulf of Mexico's crude oil production -- accounting for a quarter of U.S. domestic output, sending oil prices to then-record highs.
The next set of government data on U.S. oil inventories will be released on Wednesday and is expected to show crude stocks down by 700,000 barrels, according to a Reuters poll of analysts.
The market appeared little affected by reports of a halt of exports from Iraq's northern fields through Turkey due to a legal dispute and a delay of several days in Iraqi shipments from the southern port of Basra due to shipping congestion.