Oil Prices Settle Near $113 on Signs of Waning Demand
Oil fell to $113 a barrel on Tuesday after government data showed the steepest decline in U.S. crude demand in 26 years, adding to mounting concerns about global consumption.
U.S. oil demand during the first half of 2008 fell by an average 800,000 barrels per day (bpd) compared to the same period a year ago, the biggest volume decline since 1982, the Energy Information Administration reported.
The report came after data released on Monday showed July crude imports by No. 2 oil consumer China fell unexpectedly by 7 percent to a seven-month low in the steepest monthly drop since January 2005 as refiners balked at soaring crude costs amid lagging domestic fuel prices.
U.S. light, sweet crude settled down $1.44 at $113.01 a barrel, after falling to $112.31 earlier, the lowest level since May 2. London Brent crude fell $1.52 to settle at $111.15.
"The EIA reported the biggest six-month drop in 26 years," said Kyle Cooper, analyst for IAF Advisors. "It takes a lot of the bullish arguments away, but $113 is still not cheap."
High fuel prices and wider economic problems have sent oil off a record over $147 a barrel hit on July 11 as demand in the United States and other developed economies falters.
The EIA also lowered its global oil demand growth forecast by 80,000 bpd in 2008 and 370,000 bpd in 2009, with the U.S. demand forecast for this year cut by 70,000 bpd and by 160,000 bpd in 2009.
In a separate report released on Tuesday, the International Energy Agency left its oil demand growth outlook virtually unchanged for this year but raised its 2009 forecast slightly.
However, the IEA cut its estimate for 2008 demand for oil from OPEC and predicted supplies would grow.
U.S. retail gasoline demand fell 3.8 percent last week versus year ago levels, MasterCard Advisors reported, even as pump prices began to ease from record highs.
Growing demand from China and other emerging economies inspired a six-year rally that sent oil up sevenfold at its peak, with additional strength this year coming from investors buying oil as a hedge against the weak dollar and inflation. (Watch the accompanying video to see why economists are telling investors to buy oil...)
The gloomy demand picture outweighed concerns about supply disruptions caused by the conflict between Georgia and Russia.
Russian President Dmitry Medvedev ordered a halt to military operations in Georgia on Tuesday but Tbilisi cast doubt on the announcement, saying Moscow was still bombing towns and villages.
BP said Tuesday it shut down the 90,000-barrel-a-day oil pipeline running from its Caspian Sea fields through Georgia but neither pipeline had been damaged by recent fighting, the company said.
A third BP pipeline that runs through Georgia, the 850,000-barrel-per-day Baku-Tblisi-Ceyhan oil pipeline, was shut last week following an explosion in Turkey.
Iran's OPEC governor Muhammad Ali Khatibi said OPEC should trim its oil output if demand continues to fall in slowing industrialised economies.
The producer group next meets in September to decide on output policy.
A Reuters poll of analysts ahead of weekly U.S. inventory data due out on Wednesday forecast crude stocks fell by 200,000 barrel last week, gasoline stocks fell by 2.1 million barrels, and a 1.9 million barrel build in distillates.