Crude prices fall on high gasoline supply, possibly waning demand
NEW YORK – Crude oil prices fell Thursday, extending losses from a day earlier, when the Department of Energy reported an unexpected increase in U.S. gasoline supplies.Comments from Federal Reserve Chairman Ben Bernanke, who said Thursday that oil demand has been decreasing, also contributed to the price decline.Oil prices remain buoyed, however, by continued fighting between Israel and Hezbollah guerillas in Lebanon and an outage at a refinery in Louisiana.Light sweet crude for August delivery – which expires later Thursday – fell 61 cents to $72.05 in early afternoon trading on the New York Mercantile Exchange. On Wednesday, August crude had briefly dipped below $72 a barrel.September crude, which will become the front-month Nymex contract on Friday, was trading above $74 a barrel.”There’s a $2 higher price just on the rollover … It’s a sign that inventories are adequate in the short run, but people are concerned about the long-term supplies,” said Tom Bentz, analyst at BNP Paribas Commodity Futures in New York.Crude prices rose earlier Thursday after Valero Energy Corp. said repairs at its St. Charles refinery will cause a 20-day shutdown. The company anticipates a total loss of 1.3 million barrels of gasoline production over the repair period.But crude reversed course when Bernanke, speaking before the House Financial Services Committee, said, “We are seeing some reduction in demand for oil, perhaps less than we would like.”Based on futures market activity, the price of oil is expected to stay in range of $75 to $80 a barrel over the next two years, he said.Oil prices, which hit a record closing high of $77.03 a barrel last Friday, have retreated and are currently hovering above $72 a barrel. If oil prices were to rise another $10 or $15 a barrel, there would be “significant consequences” for the economy, the Fed chairman added. He said high energy prices are already hurting the economy, “in terms of real activity and in terms of inflation,” he said. “There is no question about it.”Prices at the gas pump are about 30 percent higher than a year ago, but demand has remained strong. The Energy Department’s report Wednesday said that over the past four weeks, U.S. gasoline demand averaged almost 9.6 million barrels per day, or 1.9 percent greater than last year.The average U.S. retail price of a gallon of regular, unleaded gasoline was $2.987 on Thursday, up from $2.98 a day earlier and $2.865 a month ago, according to AAA’s daily fuel gauge report.Prices have also fallen in recent days on the belief in the market that the conflict in Israel and Lebanon would not balloon and thus threaten Middle East oil supplies.”Unless something escalates over there, and other countries get pulled into the fighting, the markets will start to ignore it,” Bentz said.On Thursday, Israeli troops met resistance from Hezbollah guerrillas as they crossed into Lebanon to seek tunnels and weapons for a second straight day, and Israel hinted at a full-scale invasion. Israeli warplanes also launched new airstrikes on Beirut’s southern suburbs, a Hezbollah stronghold, shortly after daybreak, followed by strikes in the guerrillas’ heartland in the south and eastern Bekaa Valley.In other Nymex trading Thursday, heating oil fell 2.21 cents to $1.95 a gallon. Gasoline futures rose nearly 2 cents to $2.2475 a gallon. Natural gas futures rose nearly 25 cents to $6.11 per 1,000 cubic feet, after the Energy Department reported Thursday that natural gas storage rose about 59 billion cubic feet – which was a smaller gain than analysts had expected. Natural gas storage is at 2.763 trillion cubic feet, more than 25 percent above the 5-year average.On Wednesday, the Energy Department said gasoline inventories grew by 1.5 million barrels last week to 214.2 million barrels, or close to 1 percent above year ago levels. Analysts had projected a decline.The increase in supplies came as refineries cranked up their production, pumping out gasoline, diesel and other fuels at 93 percent of their total capacity to meet growing demand.Oil futures have plunged more than 5 percent since settling at a record above $77 a barrel on Friday due to fears in the market that the Mideast crisis could escalate and possibly draw Iran – the world’s fourth-largest oil producer and exporter – into the conflict.Adjusted for inflation, oil prices would need to hit about $90 a barrel to surpass the highs set a quarter century ago, when supplies tightened after a revolution in Iran and a war between Iraq and Iran.—Associated Press Writer Jeannine Aversa in Washington contributed to this report.