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Energy prices slump with consumers still nervous

ENERGY prices finished the week sharply lower, giving up more than 4 percent yesterday on evidence that consumers are unlikely to take the lead in an economic recovery.

Oil, which has been propped up by optimism that people will begin spending more, tumbled after a week-ending report suggested those hopes may be premature.

Benchmark crude for September delivery lost US$3.01 to settle at US$67.51 a barrel on the New York Mercantile Exchange, a low point for the month. In London, Brent prices gave up US$1.07 to settle at US$72.41 a barrel on the ICE Futures exchange.

Natural gas prices fell to its lowest level this year. The contract for September delivery dropped 9.8 cents to settle at US$3.238 per 1,000 cubic feet.

Energy prices sank early in the day along with equities markets after the Reuters/University of Michigan index of consumer sentiment fell sharply in the first part of this month.

The report comes amid a string of weak earnings reports from major retailers, which continued to arrive yesterday. Abercrombie & Fitch Co. reported its third straight quarter of double-digit sales declines. J.C. Penney Co. posted a second-quarter loss and said it expects sluggish sales for the rest of the year.

It is becoming increasingly difficult to ignore the lack of enthusiasm from consumers, who account for about 70 percent of all US economic activity.

Newedge analyst Antoine Halff said oil prices are headed for an extended fall later this year or early next year if the economy doesn't show a bolder move toward recovery.

"There's greenshoots all over the place, but consumer confidence isn't following," Halff said.

Investors who have pumped money into crude as a hedge against the weaker dollar are eventually going to be discouraged by slumping energy demand from consumers and businesses, he said.

Already, government reports have shown huge amounts of crude and natural gas being plowed into storage. In just the past two weeks, crude levels have risen by nearly 7 million barrels.

The price for crude contracts that don't require delivery until four to five months from now is higher than prices contracts that must be settled in September. But that's not a sign that traders think there will be more demand in several months.

Rather, those buying crude are adding in the cost of storage because so little is being used to make gasoline and other fuels.

In fact, refiners have cut back on production for the past four weeks.

Meanwhile, the Federal Reserve said factories, mines and utilities increased production in July more than expected, driven by the auto makers and the cash-for-clunkers program. It was only the second time production rose since December 2007.

In other Nymex trading, gasoline for September delivery gave up 8.12 cents to settle at US$1.938 a gallon. Heating oil fell 6.18 cents to settle at US$1.841 a gallon.


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