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Oil fell more than a dollar on Friday (May 12) after two widely watched reports signaled that soaring energy costs were buckling consumer confidence and curbing global fuel consumption.
Reuters reported that the International Energy Agency (IEA) said it was cutting its global oil demand growth forecast due to high prices, while the University of Michigan said in its survey of U.S. sentiment that near-record gasoline prices pushed consumer optimism to its lowest point since Hurricane Katrina.
“It’s becoming increasingly clear that the price is having quite a strong effect on demand growth,” said Lawrence Eagles, head of the IEA’s Oil Industry and Markets Division.
U.S. light crude dropped $1.28 to $72.04 a barrel, slicing away some of this week’s $3-plus gains, while London Brent crude lost $1.11 to $72.32 a barrel.
In a report on Friday, the IEA said high prices were having an impact on fuel use and cut its 2006 forecast for demand growth by 220,000 barrels per day to 1.25 million.
Eagles said the overall crude market remained tight, though concerns about strained gasoline supplies ahead of the U.S. peak summer driving season should ease as refiners crank up activity.
Meanwhile, the University of Michigan’s closely watched sentiment survey slumped to 79.0 in May from April’s final 87.4, far below the median Wall Street forecast for a reading of 86.1 – stirring worries that Americans may curb discretionary spending in the face of $3 gasoline.
“If sentiment stays at this level – it might even decline further – you should expect a serious slowing in second quarter and third quarter consumption,” said Ian Shepherdson, chief U.S. economist with High Frequency Economics.
Some analysts added that growing U.S. inventories were also weighing on prices. The U.S. government reported on Wednesday that gasoline stockpiles jumped more than expected due in part to a surge in imports and an increase in refinery activity.