Oil Falls

Oil Falls on Concern U.S. Economy Will Slow, Reducing Demand
By Robert Tuttle
Aug. 6 (Bloomberg)

Crude oil fell more than 3 percent in New York, the most in almost four months, on concern the U.S. economy will slow, reducing demand at a time of rising fuel supplies.

Oil prices have dropped 7.5 percent from the record $78.77 reached on Aug. 1 amid declines in U.S. stocks and signs losses in the mortgage market may slow the economy. In July, the nation's employment grew at the slowest pace since February. OPEC production, source of about 40 percent of world supplies, rose last month to its highest since September 2004.

``The equity markets around the world are not that robust right now,'' said Dominick Chirichella, an analyst at Energy Management Inc. in New York. ``That is getting people concerned about demand growth tailing off'' for oil.

Crude oil for September delivery declined $2.60, or 3.4 percent, to $72.88 a barrel at 1:16 p.m. on the New York Mercantile Exchange, the biggest drop since April 9. Prices are down 2.4 percent from a year ago.

Default rates for subprime mortgages in bonds are at a 10- year high. U.S. non-farm payrolls increased 92,000 last month, less than the 127,000 forecast in a Bloomberg News survey of 85 economists.

``You can't really remove what is going on with oil with what's going on with the economy,'' said Brad Samples, commodity analyst for Summit Energy Services Inc. in Louisville, Kentucky. ``People's discretionary spending is going to be cut and that's going to cut out excess driving, it's going to cut out trucks driving goods to stores.''

Brent crude oil for September settlement dropped $2.55, or 3.4 percent, to $72.20 a barrel on the ICE Futures exchange in London.

OPEC Production

Oil demand may decline as OPEC output rises. Production by the group climbed last month by the most since September 2004, a Bloomberg News Survey showed.

The 10 members of the Organization of Petroleum Exporting Countries with production quotas increased output by 85,000 barrels a day to 26.595 million barrels a day, according to a Bloomberg News survey.

The 10 countries, in an effort to maintain prices, pledged to trim 1.7 million barrels a day in two rounds of cuts, one that started Nov. 1 and another that took effect Feb. 1. The 10 members pumped 27.5 million barrels a day in October.

OPEC's basket price, a weighted average of 11 blends produced by the member nations, fell 16 cents to $72.01 a barrel on Aug. 3.

OPEC ministers are scheduled to hold their next conference on Sept. 11 in Vienna. The group is unlikely to increase crude oil production before its scheduled meeting, Algerian Energy Minister Chakib Khelil said, as cited by Kuwait News Agency yesterday.

Iraqi Output

Iraqi output rose 310,000 barrels to an average 2.235 million barrels a day last month, the highest since October 2004, the survey showed. Nigerian production climbed 150,000 barrels to an average 2.2 million barrels a day last month, the highest since February. Civil strife has reduced oil production in both countries in recent years.

``We can't necessarily rely on that flow from Iraq or that flow from Nigeria continuing on that kind of a volume,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. The increase indicates ``insurgents in both places stopped shooting at pipelines and a little more flowed.''

Oil prices have dropped 8.5 percent in euros in the past year, risen 1.4 percent in Japanese yen and fallen 8 percent in British pounds.

Falling oil prices have pushed gasoline futures to a four- month low. The prices for September delivery fell 5.38 cents, or 2.7 percent, to $1.9752 a gallon in New York, the lowest since March 23.

The national average pump price for regular gasoline fell 0.5 cent to $2.838 a gallon, according to AAA, the nation's largest motoring club. Oil accounts for about half the pump price of gasoline.