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Oil falls below US$71 ahead of US retail reports

OIL prices fell below US$71 a barrel yesterday ahead of this week's U.S. consumer spending data that could shed light on the strength of the economic recovery.

Benchmark crude for September delivery fell 33 cents to settle at US$70.60 a barrel on the New York Mercantile Exchange.

The government this week will report July retail sales, and Wal-Mart Stores Inc. and Macy's Inc. will announce their second quarter results.

Friday's news that the U.S. unemployment rate fell to 9.4 percent in June sent stock markets surging, but crude prices still fell US$1.01 to US$70.93.

A strengthening economy prompts consumers and businesses to spend more on energy, but oil has also been a beneficiary of Federal Reserve "quantitative easing" policies that push interest rates lower by adding more money to the financial system, said Alaron Trading Corp. analyst Phil Flynn.

If the economy gets too good, the Fed might have to start taking away some of the stimulus, which would remove many of the reasons why money has flooded into energy markets, Flynn said.

The Fed plans to meet on Tuesday and Wednesday to discuss "whether to send a signal to the marketplace that it's time to start cutting back on the punch before they take the entire bowl away," Flynn said in his morning report. "When they do then oil will become bearish, the dollar will firm and the market will focus on oil supply."

And that supply is rising.

The Energy Department's Energy Information Administration last week said crude inventories increased by nearly 2 million barrels, adding to the 5 million barrels put into storage the previous week.

Nawal al-Fuzeih, a senior Kuwaiti oil official, told the state-owned Kuwait News Agency Sunday that compliance of OPEC members has been good in general but that the Gulf states have been especially true to their pledges.

Kuwait, along with the world's largest oil producer, Saudi Arabia, and also Qatar and the United Arab Emirates make up the Gulf OPEC nations.

The Organization of Petroleum Exporting Countries, which decided to cut production by 4.2 million barrels from September levels, will meet next month to review production policy.

In other Nymex trading, gasoline for September delivery gained about 1.9 cents to settle at US$2.0274 a gallon and heating oil rose 0.0154 cents to settle at US$1.9276. Natural gas for September delivery fell 3.3 cents to settle at US$3.641 per 1,000 cubic feet.

In London, Brent prices fell 9 cents to settle at US$73.50 a barrel on the ICE Futures exchange.


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