Oil down as weak demand outweighs Georgia conflict
NEW YORK (AP) – Oil prices fell about a dollar Thursday, pulling back from the previous day’s rally as waning U.S. demand for energy overshadowed supply threats from the conflict in Georgia. At the pump, retail gas prices slid further. A gallon of regular fell about a penny overnight to a new national average of $3.778, according to auto club AAA, the Oil Price Information Service and Wright Express.
Crude fell as low as $112.59 a barrel as traders continued to ponder Wednesday’s U.S. Energy Department report on weekly fuel inventories. The department’s Energy Information Administration reported a bigger-than-expected drop in gasoline supplies but also said U.S. demand for refined fuel products continues to fall as American grapple with almost $4-a-gallon gasoline. The data seemed to confirm oil market analysts’ beliefs that Americans are still cutting back on their driving despite slightly lower pump prices.
Light, sweet crude for September delivery fell 99 cents to settle at $115.01 on the New York Mercantile Exchange after alternating between positive and negative territory earlier in the day. Some pullback was expected as traders sought to cash in on Wednesday’s jump of almost $3 a barrel, which temporarily halted a month long slide that took crude $35 below its July 11 high of $147.27.
Still, traders were preoccupied by growing evidence that higher prices have stifled demand for fuel.
“It’s just a market that has all the feeling of continuing to work lower until we get some definitive evidence that demand is going to improve because of lower pump prices, and that seems a long ways off,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
Thursday’s sell-off was tempered by ongoing tensions in the near weeklong conflict between Russia and Georgia over two breakaway provinces. Secretary of State Condoleezza Rice on Thursday urged Russia to honor a cease-fire with Georgia, a day after Moscow refused to leave the country despite having signed the EU-sponsored peace accord.
British oil company BP PLC said Thursday it has resumed pumping gas into the Baku-Tbilisi-Erzurum pipeline that runs through Georgia, but two oil pipelines remained closed. BP’s Baku-Supsa oil pipeline was shut as a precaution, and the larger Baku-Tbilisi-Ceyhan line remains out of action after a fire earlier this month on the Turkish section of the line.
“I think buyers are a bit edgy about the Russia-Georgia situation, knowing that’s not completely resolved. They’re looking for some geopolitical risk premium,” Ritterbusch said.
Also pressuring oil prices Thursday was the U.S. dollar’s strengthening versus the euro. The greenback has been making a comeback lately on evidence that European economies are flagging. The 15-nation euro bought $1.4811 in afternoon trading, down from its level of $1.4934 in late trading Wednesday.
“According to our calculations, the exchange rate development has contributed $12.30 per barrel to the decline in oil prices since mid-July, when the US dollar hit a low of 1.6 against the euro,” said Vienna’s JBC Energy in a research note. “Since then the greenback has improved by 6.9 percent.”
Oil normally rises when the dollar is weak as investors move out of the currency and look to crude as a safe haven.
In another report Thursday, the EIA said natural gas supplies rose by 50 billion cubic feet last week, sending futures prices tumbling. Natural gas fell 32 cents, or 3.8 percent, to settle at $8.136 per 1,000 cubic feet.
In other Nymex trading, heating oil futures slipped 3.26 cents to settle at $3.0991 a gallon while gasoline fell 2.03 cents to settle at 2.912 a gallon.
In London, Brent crude for September delivery fell 83 cents to settle at $112.64 a barrel.
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Associated Press writers George Jahn in Vienna, Austria and Alex Kennedy in Singapore contributed to this report.
AP-ES-08-14-08 1702EDT