Crude oil fell more than $3 a barrel, dropping to a six-week low, on forecasts a tropical storm in the Gulf of Mexico will miss oil installations and the dollar rebounded against the euro, reducing the appeal of commodities.
Oil declined below $126 a barrel, down more than $21 from a record $147.27 reached on July 11, as Tropical Storm Dolly moved toward the Texas border with Mexico. The dollar rose on signs that U.S. interest rates may increase. Senate Democrats yesterday cleared the first hurdle for legislation that aims to curb speculation in energy markets.
“There are dual causes to today’s move lower,” said Brad Samples, commodity analyst for Summit Energy Inc. in Louisville, Ky. “There’s a strong move by the dollar, which always puts pressure on energy prices. We aren’t worried about Dolly anymore, also putting pressure on prices.”
The number of outstanding oil futures in New York dropped to the lowest in 17 months as oil companies, refiners and institutional investors exited the market. Open interest fell 2.6 percent yesterday to 1.23 million contracts on the Nymex, according to data from the exchange.
Gasoline for August delivery fell 7.01 cents, or 2.2 percent, to $3.147 a gallon in New York, the lowest close since May 8. Futures reached a record $3.631 a gallon on July 11.
Lower pump prices
Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.4 cents to $4.055 a gallon, AAA, the nation’s largest motorist organization, said Tuesday on its Web site. Pump prices reached a record $4.114 a gallon on July 17.
U.S. gasoline demand fell 3.3 percent last week from a year ago, the 13th consecutive weekly decline, as Americans react to record pump prices by driving less, a MasterCard Inc. report yesterday showed.
Dolly strengthened over the Gulf of Mexico and may become a hurricane before making landfall, the U.S. National Hurricane Center said Tuesday. Offshore fields in the Gulf are responsible for about 25 percent of U.S. oil production.
Oil producers shut about 4.7 percent of production in the U.S. Gulf of Mexico, as they evacuated personnel from 49 platforms and six rigs in preparation for the storm, the government’s Minerals Management Service said today.
Meanwhile, legislation introduced by Senate Democrats won approval to proceed to debate, in a 94-0 vote Tuesday. Democrats said the measure could reduce oil prices as much as 50 percent.
“The fact that they were unanimous is surprising,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Mass. “It will make the market more transparent, which is a good first step. There doesn’t appear to be anything in the legislation that is so onerous that it would hurt the futures market.”
Legislation requires the Commodity Futures Trading Commission to impose limits on speculative trading in oil and natural gas futures markets. It also requires more reporting in energy markets to prevent market manipulation.
“This has the potential to move some people out of the market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. “That alone may be enough to spur some selling.”
— Bloomberg News