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NEW YORK — Oil prices sank more than $3 a barrel Friday,
dropping to the lowest level since early May after the dollar
muscled higher and OPEC predicted world demand for energy
will keep falling.
Light, sweet crude for September delivery fell $3.34 to
$111.67 a barrel on the New York Mercantile Exchange, after
earlier falling to $111.34, its lowest since May 2 and more
than $35 — or 24 percent — below oil's July 11 trading
record above $147.
As high energy costs force countries around the globe to cut
back on consumption, crude prices have plummeted and are
now within striking distance of $100 a barrel, a level first
reached Feb. 19.
At the pump, retail gas prices also continued to fall, with a
gallon of regular shedding about half a penny overnight to a
new national average of $3.771, according to auto club AAA,
the Oil Price Information Service and Wright Express. Gas
peaked at $4.114 on July 17.
Crude slipped below $112 a barrel after the dollar gained
strength against the euro on U.S. data showing that industrial
output rose more than expected in July. The 15-nation euro
has lost some of its luster compared to its American rival
amid growing evidence that European economies are slowing.
The euro bought $1.469 in morning trading Friday, down
from $1.4811 late Thursday.
A rising dollar typically pushes oil prices lower as investors
who buy crude and other commodities as hedges against
inflation start dumping their positions to cut their losses. A
stronger greenback also makes dollar-denominated
commodities more expensive to overseas buyers, further
eroding demand.
"The dollar is on fire again so that's causing people to re-
evaluate everything," said Phil Flynn, oil analyst at Alaron
Trading Corp. in Chicago. "It means oil prices could fall
dramatically. We could see prices get to double digits if this
continues."
An OPEC forecast of lower demand also put downward
pressure on prices.
In its monthly oil report, the organization forecast world
appetite for oil this year overall will fall by 30,000 barrels a
day. While forecasting demand growing by a daily 1 million
barrels a day this year, and another 900,000 barrels in 2009,
the report noted that world demand growth next year will
also be "the lowest since 2002," with demand growth from
the major industrialized countries actually declining.
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"They're basically saying we could have an oil glut because
demand is slowing," Flynn said. "It's obvious that high prices
do slow down demand and the market works."
The OPEC report came two days after the U.S. Department of
Energy highlighted the ongoing drop in U.S. demand for energy
as Americans struggle with high costs for gasoline, food and
other goods.
Oil's steady decline has continued despite the simmering
weeklong conflict between Russia and Georgia over two
breakaway provinces. Western leaders worked Friday to
persuade Russia to pull troops out of Georgia, but regional
tensions soared after a top Russian general warned that Poland
could face attack over its missile defense deal with the United
States.
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, a key supplier to Western countries,
remains shut after a fire earlier this month on the Turkish
section of the line.
Only weeks ago, the conflict in Georgia would likely have sent
oil prices soaring. But the market has largely ignored the
fighting because traders have already priced in the geopolitical
risk, analysts say. Crude's monthlong nosedive has also made it
harder for bullish traders to spark a rally, despite a possible
threat to oil installations.
Also weighing on prices Friday was the expiration of
September oil contract options at the end of the day, a trading
cycle that often increases volatility.
In other Nymex trading, heating oil futures fell over 7 cents to
$3.0278 a gallon, while gasoline prices slipped more than 9
cents $2.8188 a gallon. Natural gas futures were down by more
than 8 cents at $8.053 per 1,000 cubic feet.
In London, September Brent crude fell $3 to $110.68 a barrel.
Associated Press writers George Jahn in Vienna, Austria and
Alex Kennedy in Singapore contributed to this report.
(source: The Trucker .com)
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