Oil drops as US consumers rein in spending, offsetting a drop in supplies | iNFOnews | Thompson-Okanagan's News Source

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Oil drops as US consumers rein in spending, offsetting a drop in supplies

NEW YORK, N.Y. - Oil prices fell Wednesday after the U.S. government reported slower retail sales and a drop in spending at the pump.

If Americans aren't shopping, they don't need to swing by the gas station for a fill-up quite as often.

Benchmark West Texas Intermediate crude lost 70 cents to finish at US$82.62 a barrel on the New York Mercantile Exchange.

Brent crude, used to price international oil varieties and to make gasoline in much of the United States, fell 25 cents to end at US$96.72 a barrel in Europe.

The U.S. Commerce Department said Wednesday that retail spending slipped 0.2 per cent in May, following an identical decline in April.

Slow sales at gasoline stations helped push overall spending down. But even when the effect of volatile gasoline spending was excluded, retail spending rose just 0.1 per cent, a disappointment to economists.

It's a sign that consumers have pulled back. If consumers stay home and shippers move fewer goods, they will burn less gasoline and diesel and demand for crude to make the fuel will fall.

Meanwhile, the U.S. Energy Department said crude supplies fell by 200,000 barrels last week, though they remain relatively high for this time of year. Gasoline supplies shrank by 1.7 million barrels, however, leaving stocks slightly below average.

Analysts expected an increase in gasoline supplies. The decline was surprising because U.S. gasoline demand has been weak. The supply report briefly pushed oil higher before it retreated to negative territory.

Jim Ritterbusch, an independent oil trader and analyst, said it is likely that exports of gasoline from the Gulf Coast to Latin America and other countries led to the drain in gasoline stocks, not any rebound in U.S. demand.

Oil prices fluctuated throughout the day because the oil market is skittish ahead of several upcoming events that could influence global supply and demand:

— On Thursday the Organization of Petroleum Exporting Countries will meet in Vienna. OPEC could decide to restrict production in an effort to reverse a decline in the price of crude. Oil has fallen 24 per cent since late February.

— More U.S. economic data will be released this week, including initial jobless claims for the first week in June and industrial production in May.

— An election in Greece that could lead the country to abandon the euro has traders worried that the European financial crisis could worsen.

— Early next week leaders from six global powers will try to convince Iran to abandon its nuclear ambitions when the two sides meet in Moscow.

Iran's pursuit of nuclear technology has led the West to tighten sanctions against the country in hopes of depriving the country of revenue from oil sales. A European embargo of Iranian oil is set to take effect July 1.

Concerns over Iran's possible reaction to the new sanctions sent oil sharply higher early this year, but worries have dissipated since Iran has agreed to participate in talks. If the talks break down, worries over supply disruptions from the Middle East could return to the market and push prices higher, experts say.

"We have such a basket of risk, we're up, we're down, it's a trader's market," says Rich Ilczyszyn, founder of iiTrader.com.

In other trading, heating oil fell a penny to finish at US$2.611 a U.S. gallon (3.79 litres), wholesale gasoline rose less than a cent to end at US$2.655 a gallon and natural gas fell 4.7 cents to finish at US$2.185 per 1,000 cubic feet.


News from © The Associated Press, 2012
The Associated Press

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