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Oil drops, dollar rises
Source: Agencies |
April 19, 2011, Tuesday
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OIL slipped more than 2 percent Monday after Standard & Poor's lowered its long-term outlook for US debt, raising concerns about the economy and expectations of cuts in government spending. Another move by China to slow its booming economy also helped push prices down.
Benchmark West Texas Intermediate crude fell US$2.54, or 2.3 percent, to settle at US$107.12 per barrel on the New York Mercantile Exchange.
Gasoline pump prices climbed to a national average of US$3.83 per gallon (about US$1 a liter), according to AAA, Wright Express and Oil Price Information Service. A gallon of regular has increased 29.1 cents in the last month and 96.8 cents from a year ago. Pump prices are above US$4 per gallon in California, New York, Illinois, Connecticut, Washington D.C., Hawaii and Alaska.
Economists are watching for signs that high fuel prices are taking a toll on the economy. Industry surveys suggest that drivers are cutting back on gasoline purchases. The combination of stagnant wages and rising food and energy costs has prompted some economists to lower their growth estimates for the economy in the first quarter by half.
A surprise decision by Standard & Poor's Ratings Service to lower its long-term outlook for US debt to "Negative" from "Stable" made a drop in energy consumption more likely, analysts said. The US is facing a record US$1.5 trillion deficit this year, and lawmakers are looking for ways to trim the huge debt.
"If the US doesn't get its budget under control, we'll need to raise interest rates," said Phil Flynn, an energy analyst with PFGBest. Higher interest rates will make it tougher for consumers and businesses to raise money. That will slow down the economy and dampen energy demand, Flynn said.
"This is a real wake-up call for the government," he said. "They need to get spending under control."
Oil had been falling since early in the day, following China's announcement over the weekend that its central bank would raise bank reserve requirements for the fourth time this year in an attempt to get inflation under control. The move is expected to hurt energy demand by making it harder for consumers and businesses in China to raise money. China is the world's second largest oil consumer behind the US
The price of oil was also undercut by comments from OPEC officials who said on Sunday that the market is oversupplied with crude and the recent surge in oil prices could drag down the global economic recovery. Saudi Arabia's oil minister said his country cut oil production in March, but will probably raise it again this month.
Also, the dollar rose against the euro and other currencies yesterday. The euro weakened on worries the Greece would default on its debt. Since oil is traded in dollars, a stronger dollar makes crude less attractive to buyers with foreign currencies and the price generally falls.
In other Nymex trading for May contracts, heating oil lost 4.14 cents to settle at US$3.1828 per gallon and gasoline futures gave up 3.64 cents to settle at US$3.2528 per gallon. Natural gas lost 6.6 cents to settle at US$4.138 per 1,000 cubic feet.
In London, Brent crude lost US$1.84 to settle at US$121.61 per barrel on the ICE Futures exchange.
Benchmark West Texas Intermediate crude fell US$2.54, or 2.3 percent, to settle at US$107.12 per barrel on the New York Mercantile Exchange.
Gasoline pump prices climbed to a national average of US$3.83 per gallon (about US$1 a liter), according to AAA, Wright Express and Oil Price Information Service. A gallon of regular has increased 29.1 cents in the last month and 96.8 cents from a year ago. Pump prices are above US$4 per gallon in California, New York, Illinois, Connecticut, Washington D.C., Hawaii and Alaska.
Economists are watching for signs that high fuel prices are taking a toll on the economy. Industry surveys suggest that drivers are cutting back on gasoline purchases. The combination of stagnant wages and rising food and energy costs has prompted some economists to lower their growth estimates for the economy in the first quarter by half.
A surprise decision by Standard & Poor's Ratings Service to lower its long-term outlook for US debt to "Negative" from "Stable" made a drop in energy consumption more likely, analysts said. The US is facing a record US$1.5 trillion deficit this year, and lawmakers are looking for ways to trim the huge debt.
"If the US doesn't get its budget under control, we'll need to raise interest rates," said Phil Flynn, an energy analyst with PFGBest. Higher interest rates will make it tougher for consumers and businesses to raise money. That will slow down the economy and dampen energy demand, Flynn said.
"This is a real wake-up call for the government," he said. "They need to get spending under control."
Oil had been falling since early in the day, following China's announcement over the weekend that its central bank would raise bank reserve requirements for the fourth time this year in an attempt to get inflation under control. The move is expected to hurt energy demand by making it harder for consumers and businesses in China to raise money. China is the world's second largest oil consumer behind the US
The price of oil was also undercut by comments from OPEC officials who said on Sunday that the market is oversupplied with crude and the recent surge in oil prices could drag down the global economic recovery. Saudi Arabia's oil minister said his country cut oil production in March, but will probably raise it again this month.
Also, the dollar rose against the euro and other currencies yesterday. The euro weakened on worries the Greece would default on its debt. Since oil is traded in dollars, a stronger dollar makes crude less attractive to buyers with foreign currencies and the price generally falls.
In other Nymex trading for May contracts, heating oil lost 4.14 cents to settle at US$3.1828 per gallon and gasoline futures gave up 3.64 cents to settle at US$3.2528 per gallon. Natural gas lost 6.6 cents to settle at US$4.138 per 1,000 cubic feet.
In London, Brent crude lost US$1.84 to settle at US$121.61 per barrel on the ICE Futures exchange.
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