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Oil prices tumble near US$60 as gas supplies surge

OIL prices neared US$60 per barrel yesterday as the U.S. government reported that stockpiles of unused gasoline soared again.

Energy markets are undergoing an extended sell-off, the longest in 10 months, with new economic reports dampening optimism about any economic recovery.

Benchmark crude for August delivery fell more than 4 percent, or US$2.79, to settle at US$60.14 a barrel on the New York Mercantile Exchange. Prices came within a penny of US$60 at one point.

In just over one week, oil prices have fallen more than 18 percent.

"The recession is far from over," said analyst Stephen Schork. "Perhaps the run-up in prices was a bit overstated."

Crude prices by last week had more than doubled from lows reached January, when a barrel of crude cost slightly more than US$30. That was just six months removed from record highs near US$150 per barrel last summer.

Cheap oil sparked a new round of investment, as did the U.S. dollar which had been weakened by government efforts to bail out major banks and automakers.

Crude is priced in the dollar, so it effectively becomes cheaper internationally when the dollar falls.

Yet dismal economic data continues to emerge and the fundamentals of supply and demand appeared to take control of the market again, starting last week.

The International Monetary Fund yesterday lowered its global economic forecast, the latest suggestion that the global economy cannot support high energy prices. The Organization of Petroleum Exporting Countries predicted that demand for crude has fallen so sharply, it will take another four years to recover to 2008 levels.

Since peaking at US$73.38 last Tuesday, crude futures have fallen by more than US$13 per barrel. Gasoline, heating oil and natural gas futures are also tanking.

Americans are driving billions fewer miles (kilometers) than they had in recent years with millions losing their jobs.

Even though refiners have been slashing production, gasoline continues to pile up.

The Department of Energy reported yesterday that gasoline in storage grew by another 1.9 million barrels last week, the fifth straight week that levels have grown.

The volatile energy markets may lead to increased scrutiny, both in the U.S. and overseas.

Federal regulators said Tuesday they would examine whether the government should impose limits on the number of futures contracts held by speculative traders.

Speculation in oil markets will be one of the topics discussed by world leaders meeting in Italy during the Group of Eight summit.

In an editorial published by The Wall Street Journal, British Prime Minister Gordon Brown and French President Nicolas Sarkozy also called for closer government oversight of the oil-trading markets.

In other Nymex trading, gasoline for August delivery slid by 9.9 cents to settle at US$1.6333 a gallon and heating oil lost about 6.3 cents to settle at US$1.5379. Natural gas for August delivery fell 7.6 cents to settle at US$3.353 per 1,000 cubic feet.

In London, Brent prices shed US$2.80 to settle at US$60.43 a barrel on the ICE Futures exchange.


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