Oil touches US$75, then tumbles on deficit numbers | Shanghai Daily

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Oil touches US$75, then tumbles on deficit numbers

OIL prices fell more than 3 percent yesterday after a new report from Washington projected a cumulative US$7 trillion U.S. deficit for the next decade.

Prices initially swung higher, briefly touching US$75 per barrel for the first time in 10 months on new signals that consumers are feeling a little better about the economy.

Yet lingering questions about when and how fast any recovery might occur led to some volatile markets yesterday.

Benchmark crude for October delivery fell US$2.32 to settle at US$72.02 a barrel in trading on the New York Mercantile Exchange.

"Oil still struggles to follow through decisively with an upside breakout," PFGBest Research analyst Phil Flynn said in a note to clients yesterday. "Is oil destined to make new highs, or is it just a matter of time before we see a correction of massive proportions?"

The New York-based Conference Board provided a bit of good news when it said its Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in July. Economists surveyed by Thomson Reuters had expected a slight increase to 47.5.

Still, the index is well below 90, the minimum level associated with a healthy economy. Anything above 100 signals strong growth.

Energy prices have risen sharply this year mostly on the belief that the economy is getting better and demand will rebound soon. Still, the rules of supply and demand still apply to current prices and on Wednesday, the government will release its weekly report on how much supply we have.

Last week, a surprise drawdown in crude began a rally that ran through Monday, the fourth-consecutive day in which oil prices moved higher.

Despite optimism about recovery from recession, analysts say energy demand remains in the doldrums and seasonally lower demand for gasoline as the summer holidays end will exacerbate that weakness.

"In my view, oil prices will likely give in to the fundamentals in the coming week," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Seasonally, oil demand is lower in autumn, so reduced demand in the shoulder season may put further pressure on oil."

U.S. gasoline prices remain pretty much flat as the peak driving season is coming to an end.

The Energy Department late Monday reported that prices at the pump moved lower for the second straight week.

In other Nymex trading, gasoline for September delivery fell 4.21 cents to settle at US$2.007 a gallon and heating oil fell 6.75 cents to settle at US$1.8559 a gallon. Natural gas fell 4.1 cents to settle at US$2.882 per 1,000 cubic feet.

In London, Brent crude fell US$2.44 to settle at US$71.82.



 

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