Oil Settles Below $64 on Demand Concerns

Oil prices waffled Monday, touching their lowest levels in nearly a year and a half but also showing some strength after a surprisingly upbeat home sales report gave investors a glimmer of hope that the housing market might rebound and help ease the economy's many problems.

U.S. light, sweet crude for December delivery traded down 93 cents, or 1.4 percent, to settle at $63.22 a barrel.

London Brent crude traded down more than $1 at above $60 per barrel.

Oil dropped as low at $61.30 a barrel in early trading before rising in response to the Commerce Department report that sales of new single-family homes rose by 2.7 percent in September to a seasonally adjusted annual rate of 464,000 homes.

Economists had expected sales would drop from August.

Any positive news about the U.S. economy is welcomed by investors, and the home sales report lifted Wall Street off its lows. Stock prices were fluctuating and tending toward the downside in late afternoon.

"It seems oil is following the equities markets at this point, and has been for the past couple of weeks," said Peter Beutel, oil analyst at Cameron Hanover in New Canaan, Conn.

AP

But just as the stock market was unable to hold on to gains, oil pulled back.

The weakness of the economy has traders convinced that demand for energy will continue to flag; one set of data—in this case, the home sales number—won't be enough to lift the markets from their slump.

Earlier in the day, prices fell as traders' focus on the economy had them brushing off OPEC's sizable production cut late last week.

"The market ignored OPEC's attempt to shore up prices as there are larger, long-term problems plaguing the market that a short-term production cut cannot overshadow, including softening demand, institutional unwinding and the credit crunch," Raymond James & Associates analyst Darren Horowitz said in a note to clients Monday.

Institutional unwinding refers to selling by funds, including those that need to raise money to pay off margin loans, or money borrowed to buy futures contracts, stocks and other investments.

"The mood is fairly negative reflecting worry about the international economic outlook," said David Moore, a commodities strategist at Commonwealth Bank of Australia in Sydney. "If there is further weak economic data in the U.S. or Europe, prices could come under more downward pressure."

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Iran's OPEC governor Mohammad Ali Khatibi said Sunday a reduction in production "will be considered" at the group's next meeting in Algiers in December—a meeting that might even be held early if necessary.

"I thought the OPEC cut was a fairly decisive act, but concerns of recession in the major economies remain dominant," Moore said. "OPEC's cut does take a step toward tightening the market."

Vienna's JBC Energy said prices were out of OPEC's control—for now.

"Oil is currently being driven by the present financial crisis and not by OPEC cuts," said its research report. "As oil prices are being pressured by the credit squeeze and a lack of liquidity, they may stay largely detached from supply factors for several weeks to come. As a result, OPEC is currently struggling with factors beyond its control."

Investors have been paying close attention to signs that a slowing economy and higher gasoline prices earlier this year have hurt crude demand in the U.S., the world's largest oil consumer.

The Department of Transportation said Friday that Americans drove 5.6 percent less, or 15 billion fewer miles, in August compared with same month a year ago—the biggest single monthly decline since the data was first collected regularly in 1942.

A gallon of regular gas fell 3 cents overnight to a new national average of $2.668, according to auto club AAA, the Oil Price Information Service and Wright Express. That's roughly a dollar less than what was paid just a month ago and 18 cents below gas prices one year ago on Oct. 27.

In other Nymex trading, November gasoline futures fell 0.1 cent to $1.4779 a gallon, while heating oil slipped 3.29 cents to $1.9144 a gallon. Natural gas for November delivery fell 11.8 cents to $6.121 per 1,000 cubic feet.

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