Oil fell to its lowest price in three months Friday, briefly touching the US$111 level after the dollar muscled higher and OPEC predicted the world’s thirst for fuel next year would fall to its lowest point since 2002.
Light, sweet crude for September delivery fell US$1.24 to settle at US$113.77 a barrel on the New York Mercantile Exchange after falling to US$111.34, its lowest price since May 2 and more than US$35 — or 24 percent — below its July 11 trading record above US$147.
As high energy costs force countries around the globe to cut back on consumption, crude prices have plummeted and are now within striking distance of US$100 a barrel, a level first reached on Feb. 19.
At the pump, retail gas prices also continued falling, with 1 liter of regular dropping to a new national average of US$0.996, according to auto club AAA, the Oil Price Information Service and Wright Express. Gas peaked at US$1.086 on July 17.
Crude fell after the dollar gained strength against the euro on US data showing that industrial output rose more than expected in July. The 15-nation euro has lost some of its luster compared to its US rival amid growing evidence that European economies are slowing. The euro bought US$1.4675 in trading Friday, down from US$1.4811 late Thursday.
A rising dollar typically pushes oil prices lower as investors who buy crude and other commodities as hedges against inflation start dumping their positions to cut their losses. A stronger greenback also makes dollar-denominated commodities more expensive to overseas buyers, further eroding demand.
“The dollar is on fire again so that’s causing people to re-evaluate everything,” said Phil Flynn, oil analyst at Alaron Trading Co in Chicago. “It means oil prices could fall dramatically. We could see prices get to double digits if this continues.”
An OPEC forecast of lower demand also put downward pressure on prices.
In its monthly oil report, the organization forecast world appetite for oil this year overall will fall by 30,000 barrels a day. While forecasting demand growing by a daily 1 million barrels a day this year, and another 900,000 barrels next year, the report noted that world demand growth next year will also be “the lowest since 2002,” with demand growth from the major industrialized countries actually declining.
“They’re basically saying we could have an oil glut because demand is slowing,” Flynn said. “It’s obvious that high prices do slow down demand and the market works.”
The OPEC report came two days after the US Department of Energy highlighted the ongoing drop in US demand for energy as Americans struggle with high costs for gasoline, food and other goods.
Oil’s steady decline has continued despite the simmering weeklong conflict between Russia and Georgia over two breakaway provinces.
Western leaders worked on Friday to persuade Russia to pull troops out of Georgia, but regional tensions soared after a top Russian general warned that Poland could face attack over its missile defense deal with the US.
British oil company BP PLC said on Thursday it has resumed pumping gas into the Baku-Tbilisi-Erzurum pipeline that runs through Georgia, but two oil pipelines remained closed.
BP’s Baku-Supsa oil pipeline was shut as a precaution and the larger Baku-Tbilisi-Ceyhan line, a key supplier to Western countries, remains shut after a fire earlier this month on the Turkish section of the line.
Analysts said the conflict in Georgia, while likely not driven primarily by energy concerns, highlights Moscow’s influence over oil and natural gas reserves in the region.
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