Oil drops again as pump prices slip slightly
Published 12:57 am Sunday, July 27, 2008
Oil prices sank to their lowest point in weeks Friday as investors questioned whether crude has cooled enough to reflect a serious deterioration in demand. Prices at the pump eased to nearly $4 a gallon, and AAA said a gallon of gas could cost as much as 25 cents less by Labor Day.
Light, sweet crude for September delivery fell $2.23 to settle at $123.26 a barrel in on the New York Mercantile Exchange. Earlier the contract dropped as far as $122.50, its lowest point since June 5.
In the latest sign that Americans continue to struggle with soaring energy prices, filling station operators hungry for business ratcheted down the average price for a gallon of regular by 2 cents, according to auto club AAA, the Oil Price Information Service and Wright Express.
AAA spokesman Geoff Sundstrom said such a large decline indicates a deteriorating demand by the world’s thirstiest oil consumer. Retail prices have fallen about a dime per gallon in just the past week.
“People say typically prices shoot up like a rocket, fall like a feather. But this time … it looks like it’s different,” Sundstrom said. “The retail sector is interested in bringing these prices down as fast as they can to stimulate business in their convenience stores.”
A gallon of gas now sells for $4.006, the first time it has been that low in nearly seven weeks. Diesel dropped nearly a penny and a half to $4.774 a gallon.
Sundstrom said prices at the pump should slip below the $4 mark over the weekend and could drop by at least another 25 cents by Labor Day, if oil stays on its downward path.
“We’re seeing a historic change in driving habits,” he said, although he added that “we still have a long way to go before we get back to the comfort zone, if you will, for the consumer.”
Oil traders managed to post a gain of $1.05 a barrel Thursday, but analysts say the market’s momentum points to further declines.
The magnitude of the past two weeks’ sell-off is stark. Crude has fallen in seven of the last nine sessions, and is was down more than 16 percent from its peak above $147 a barrel earlier this month. Still, prices remain about 65 percent higher than they were this time last year.
“There’s just nothing sufficiently bullish coming into the market right now to sustain a rally,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. “We’re just seeing a new theme in which demand has become a very important part of the equation.”
Threats to supply, which traders have fretted over for months, remain.
The abduction of five crew members from a Swedish boat in Nigeria’s oil-producing Niger delta region highlighted the risks of operating in the African nation, a major supplier to the U.S. Earlier in the week, Nigerian militants threatened to blow up pipelines in the region within a month.
Investors are also watching for any signs in increased tension between Iran and the West.
Although supply concerns have taken a back seat to demand over the past two weeks, analysts note that prices could rebound, on even a temporary cut to supply.
“There is a palpable sense of exhaustion amongst traders after the steep sell-off of the past two weeks, and many think we are in for a period of stabilization,” said Addison Armstrong, director of market research at Tradition Energy. “This notion is being supported by renewed concerns about events in Nigeria and the Middle East.”
In other Nymex trading, heating oil futures fell 2.18 cents to $3.5453 a gallon while gasoline futures lost 2.54 cents to $3.034 a gallon. Natural gas prices sank 15.3 cents to $9.17 per 1,000 cubic feet.
In London, September Brent crude fell $2.01 to $124.43 a barrel on the ICE Futures exchange.