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Oil slides on economic concerns
Source: Agencies |
September 5, 2012, Wednesday
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THE price of oil slipped yesterday after a weak report on US manufacturing suggested demand for oil would fall.
US benchmark crude fell US$1.17 to close at US$95.30 per barrel in New York. Brent crude, which is used by many US refineries to make gasoline, fell US$1.60 to US$114.18 per barrel in London.
The Institute for Supply Management said yesterday its index of US factory activity fell for the third straight month, suggesting more weakness in the US economy. When economic growth slows, drivers, shippers and travelers use less gasoline, diesel and jet fuel.
Meanwhile, oil production in the Gulf of Mexico is ramping up after Hurricane Isaac, erasing fears that the storm would impact supplies for an extended period and send prices up. The Bureau of Safety and Environmental Enforcement said yesterday only 3.5 percent of the Gulf of Mexico oil platforms remain evacuated. Production ramped up by about 100,000 barrels per day between yesterday and Wednesday and is now 710,000 barrels per day below normal. At the height of the storm, 1.3 million barrels per day of production was halted.
Oil might have fallen further yesterday, analysts said, but traders are expecting stimulus programs will soon be announced in Europe, the US and China that could free up cash for oil purchases and boost economic growth worldwide.
"There are a lot of crosscurrents," said Andrew Lebow, an analyst at Jefferies Bache.
The European Central Bank President Mario Draghi is expected to reveal a program Thursday aimed at easing borrowing costs. Last week Federal Reserve Chairman Ben Bernanke suggested the Fed could do the same. A weak manufacturing report in China raised speculation that the Chinese government would also announce stimulus measures.
These programs reduce interest rates and free up cash for investors. They are then likely to use some of that money to invest in oil and other commodities, pushing prices higher.
Phil Flynn of Price Futures Group suggested hopes for stimulus could already be priced into the oil market, however.
"Last week we were intoxicated by stimulus," he said. "The market now may want to see more than talk. It may want to see some action."
Gasoline prices also fell - slightly. The US average retail price of gasoline slipped less than a penny to US$3.82 per gallon (US$1 a liter).
Phillips 66 said yesterday that power had been restored to its 247,000-barrel per day refinery in Belle Chasse, Louisiana that had been shut down in anticipation of the storm and then flooded by Isaac's heavy rains. The company said it will be "a couple of weeks" before the refinery is running at normal rates. But now all of the refineries that were shut or slowed are in the process of ramping back up, according to the Energy Department.
Gas could stay relatively high, though, if economic stimulus measures keep the price of crude elevated. Retail gasoline prices are higher than ever for this time of year.
In other futures trading in New York:
- Natural gas rose 5 cents, or 1.8 percent, to close at US$2.85 per thousand cubic feet.
- Wholesale gasoline fell 2 cents to close at US$2.95 per gallon.
- Heating oil fell 3 cents to close at US$3.15 per gallon.
US benchmark crude fell US$1.17 to close at US$95.30 per barrel in New York. Brent crude, which is used by many US refineries to make gasoline, fell US$1.60 to US$114.18 per barrel in London.
The Institute for Supply Management said yesterday its index of US factory activity fell for the third straight month, suggesting more weakness in the US economy. When economic growth slows, drivers, shippers and travelers use less gasoline, diesel and jet fuel.
Meanwhile, oil production in the Gulf of Mexico is ramping up after Hurricane Isaac, erasing fears that the storm would impact supplies for an extended period and send prices up. The Bureau of Safety and Environmental Enforcement said yesterday only 3.5 percent of the Gulf of Mexico oil platforms remain evacuated. Production ramped up by about 100,000 barrels per day between yesterday and Wednesday and is now 710,000 barrels per day below normal. At the height of the storm, 1.3 million barrels per day of production was halted.
Oil might have fallen further yesterday, analysts said, but traders are expecting stimulus programs will soon be announced in Europe, the US and China that could free up cash for oil purchases and boost economic growth worldwide.
"There are a lot of crosscurrents," said Andrew Lebow, an analyst at Jefferies Bache.
The European Central Bank President Mario Draghi is expected to reveal a program Thursday aimed at easing borrowing costs. Last week Federal Reserve Chairman Ben Bernanke suggested the Fed could do the same. A weak manufacturing report in China raised speculation that the Chinese government would also announce stimulus measures.
These programs reduce interest rates and free up cash for investors. They are then likely to use some of that money to invest in oil and other commodities, pushing prices higher.
Phil Flynn of Price Futures Group suggested hopes for stimulus could already be priced into the oil market, however.
"Last week we were intoxicated by stimulus," he said. "The market now may want to see more than talk. It may want to see some action."
Gasoline prices also fell - slightly. The US average retail price of gasoline slipped less than a penny to US$3.82 per gallon (US$1 a liter).
Phillips 66 said yesterday that power had been restored to its 247,000-barrel per day refinery in Belle Chasse, Louisiana that had been shut down in anticipation of the storm and then flooded by Isaac's heavy rains. The company said it will be "a couple of weeks" before the refinery is running at normal rates. But now all of the refineries that were shut or slowed are in the process of ramping back up, according to the Energy Department.
Gas could stay relatively high, though, if economic stimulus measures keep the price of crude elevated. Retail gasoline prices are higher than ever for this time of year.
In other futures trading in New York:
- Natural gas rose 5 cents, or 1.8 percent, to close at US$2.85 per thousand cubic feet.
- Wholesale gasoline fell 2 cents to close at US$2.95 per gallon.
- Heating oil fell 3 cents to close at US$3.15 per gallon.
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