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Crude oil futures fell today (Aug. 6) as low as $117.11 a barrel on speculation a slowing global economy will reduce demand, and after the dollar hit a seven-week high.
Bloomberg reported that the 1.7% drop put prices more than 20% below the record $147.27 a barrel in New York on July 11; a drop of 20% is a threshold often seen as the start of a bear market.
Oil’s decline follows a one-year doubling of prices as the dollar weakened, demand in Asia grew and Iran’s nuclear program spurred concern that the country, the Middle-East’s second- biggest oil producer, might face a military attack from Israel.
“We’ve been warning about the oil bubble bursting after reaching $150 because of investors pulling money out of the markets and the negative demand reaction,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. “At the moment we expect a corrective move to continue.”
Crude oil for September delivery fell 59 cents, or 0.5%, to $118.58 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices touched the lowest since May 5.
Accordingly, gas prices continue to retreat. Regular gasoline at the pump, averaged nationwide, fell 0.9 cent to $3.862 a gallon, AAA, the nation’s largest motorist organization, said today on its website. Pump prices reached a record $4.114 a gallon on July 17, as higher prices curbed demand.
Oil futures fell after a U.S. government report showed an unexpected increase in inventories and an extended decline in fuel demand.
Crude supplies rose 1.61 million barrels to 296.9 million barrels in the week ended Aug. 1, the Energy Department said today in its weekly report. Inventories were forecast to fall 200,000 barrels, according to the median of analyst estimates in a Bloomberg News survey.
“The bubble has burst,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Fla. “As the dollar continues to stabilize, the excuse for buying commodities is ended. The dollar has been strengthening, and that is one big catalyst that is gone.”
Also fueling oil’s decline, U.S. gasoline demand fell for a 15th consecutive week as high prices caused motorists to drive less, a MasterCard Inc. report yesterday showed. Demand last week dropped 3.4% from a year earlier, MasterCard, the second-biggest credit-card company, said in a weekly report.