Crude oil fell to a two-week low and gasoline tumbled after a report showed that confidence among U.S. consumers unexpectedly declined in August.
Crude oil fell to a two-week low and gasoline tumbled after a report showed that confidence among U.S. consumers unexpectedly declined in August, bolstering skepticism that fuel demand will rebound this year. Oil dropped 4.3 percent after the Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 from 66 in July. Oil also slumped as the dollar gained against the euro, reducing the appeal of commodities to investors looking for an inflation hedge.
?Consumers are worried about the economy, and that"s raising concerns about demand,? said Phil Flynn, vice president of research at PFGBest, a Chicago-based brokerage. ?Just a few days ago people were worried about inflation. That"s no longer the case.?
Crude oil for September delivery declined $3.01 to $67.51 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the lowest settlement since July 30. It was the biggest one-day drop since July 29. Futures have risen 51 percent this year and are down 4.8 percent this week.
Gasoline for September delivery dropped 8.12 cents, or 4 percent, to end the session at $1.938 a gallon in New York. It was the lowest settlement since July 29 and the biggest decline since July 8.
Economists forecast the consumer confidence index would rise to 69, according to the median of 61 projections in a Bloomberg News survey conducted before the report"s release.
?Commodities and the stock market have been building on good economic news,? said Bill O"Grady, the chief market strategist for Confluence Investment Management in St. Louis. ?It"s clear that the markets can"t deal with any bad news.?
U.S. equities also fell on the consumer confidence report. The Standard & Poor"s 500 Index slipped 1.5 percent to 997.51 at 3:30 p.m. and the Dow Jones Industrial Average declined 1.5 percent to 9,261.17.
?Once the consumer confidence report was released, equities dropped and oil tagged along,? said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. ?The drop accelerated once oil broke through the week"s lows.?
The cost of living in the U.S. was unchanged in July, as the recession sapped companies" pricing power. Compared with a year earlier, consumer prices were down 2.1 percent, the biggest 12-month decrease since 1950, according to Labor Department data released today in Washington.
?The market may find it hard to maintain these prices with the end of the driving season just a few weeks away,? O"Grady said. ?The driving season is already past its peak because some school districts have already started classes. We will soon be going into September, which is a really low demand period.?
Gasoline consumption in the U.S. peaks during the summer, when Americans take to the highways for vacations. The so-called driving season lasts from the Memorial Day weekend in late May to Labor Day in early September.
Brent crude oil for September settlement declined $1.07, or 1.5 percent, to end the session at $72.41 a barrel on London"s ICE Futures Europe exchange. Brent futures are $4.90 a barrel higher than oil traded in New York, the biggest premium since February.
The September contract expired today. The more-active October contract slipped $2.50, or 3.4 percent, to $71.44.
U.S. crude-oil supplies increased by 2.52 million barrels to 352 million in the week ended Aug. 7, an Energy Department report on Aug. 12 showed. Stockpiles in Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, rose 281,000 barrels to 33.6 million, the highest since March.
?Brent is now trading at a substantial premium to WTI,? said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. ?This tells us that the U.S. market is grossly oversupplied.?
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