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Oil slips on questions about demand

OIL prices slipped yesterday as investors questioned whether the U.S. would regain its appetite for petroleum.

Benchmark crude for December delivery gave up 78 cents to settle at US$79.62 a barrel on the New York Mercantile Exchange. In London, Brent crude for December delivery fell 90 cents to settle at US$77.99 on the ICE Futures exchange.

While the economy has shown signs of recovery, economists, including those at Cambridge Energy Research Associates, have predicted that world energy demand will continue to slide as automakers build cars with better mileage and countries embrace alternative fuels.

That assessment, combined with Energy Information Administration data that showed a drop in oil imports last week, helped push crude prices lower.

"The good news we're hearing about the economy is not translating to a stronger oil market yet," said Michael Lynch, president of Strategic Energy & Economic Research.

The Labor Department said yesterday that productivity increased and the number of people seeking unemployment benefits for the first time dropped to the lowest level in 10 months. Still, analysts continued to focus on weak oil imports and tepid consumer demand.

The EIA also reported yesterday that the U.S. continues to sit on an ever-expanding natural gas stockpile that's the largest on record. As of last week, 3.79 trillion cubic feet of natural gas had been crammed into storage.

Natural gas is a key energy source for power plants around the country, and a large buildup in supplies provides yet another example that factories and other businesses are struggling to ramp up their operations.

Oil prices had increased for several months, primarily tracking the decline in the dollar. Crude barrels are priced in U.S. currency, and they tend to rise in price as the dollar weakens and gives buyers holding international currencies the ability to buy more with the same money.

But concerns about large petroleum surpluses and poor consumer demand have raised doubts about how high oil can go.

In other Nymex trading, heating oil fell 3.26 cents to settle at US$2.0576 a gallon. Gasoline for December delivery lost 2.5 cents to settle at US$1.9877 a gallon. Natural gas for December delivery rose 5.7 cents to settle at US$4.782 per 1,000 cubic feet.


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