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Oil rally sputters; prices near $67 per barrel

A TWO-week rally in oil markets sputtered yesterday and crude prices fell along with the stock market.

Prices first dipped in electronic trading before the market opened and then dropped sharply when new data suggested consumers are less confident than ever about their jobs and the economy as a whole.

Economic anxiety has kept people closer to home this year and the most energy-intense industries have cut back on production.

Benchmark crude for September delivery fell US$1.15 to settle at US$67.23 a barrel in trading on the New York Mercantile Exchange.

What appears to be an end to an extended rally comes one day ahead of a U.S. government report detailing how much crude is in storage.

If the latest economic data can be taken as a barometer, it suggests that the appetite for energy has not rebounded as quickly as some had hoped.

Even before the sell-off yesterday, most energy experts expected crude in storage to rise because demand remains weak.

A barrel of oil was about US$9 cheaper just two weeks ago, before better-than-expected corporate earnings suggested to some that the economy is on the mend. The Dow Jones industrial average has jumped 11 percent in about the same time.

But while many energy experts and oil traders say that there is a clear correlation between energy and equities markets, they have questioned the whether oil prices should be this high.

"Theoretically, the oil market shouldn't be following the equity markets higher, but it has," said Jim Ritterbusch of Ritterbusch and Associates.

Executives at major energy companies continue to say that a rebound in demand is a long way off.

On yesterday, the first major international oil company reported results from the second quarter.

BP PLC, Europe's second largest oil company, said profits fell 53 percent compared with a year earlier, when crude spiked to record heights.

CEO Tony Hayward said he expected any recovery to be "long and drawn out."

Valero Energy Corp., the largest U.S. independent refiner, reported a loss US$254 million yesterday, just a year removed from profits of US$734 million. And Valero said it could continue to lose money for the rest of the year if a weak economy persists.

The second quarter us usually very strong for companies like Valero, which refines oil into jet fuel and gasoline, because it is usually the three months when Americans travel most.

But there is much less being shipped in 18 wheelers and Americans are driving far less than they did in past years, even though gasoline is a comparative bargain.

Yet prices remain volatile and yesterday marked the opening of hearings in Washington seeking to determine the effects of speculators on the energy markets.

The head of the Commodity Futures Trading Commission, which monitors commodities markets, blamed "excessive" speculation for wild swings in the energy prices, though he said some speculation is necessary for the market to function.

Gary Gensler, chairman of the CFTC, said it is the duty of the commission to prevent a few major players from holding too much sway over energy prices.

In other Nymex trading, gasoline for August delivery fell 2.41 cents to settle at US$1.9106 a gallon and heating oil lost 2.99 cents to settle at US$1.7647. Natural gas for August delivery fell 6.9 cents to settle at US$3.535 per 1,000 cubic feet.

In London, Brent crude prices fell 93 cents to settle at US$69.88 a barrel on the ICE Futures exchange.


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