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[2010-02-08]
Oil prices drop on sagging demand
| OIL prices ran up against forecasts for warmer weather, people who won't drive or spend money and a stronger dollar.
Those factors combined for a fifth straight day of losses. Benchmark crude for February delivery slid $1.39 cents Friday to settle at $78 a barrel on the New York Mercantile Exchange. The price was down $4.75 for the week.
Government data raised more concerns about consumer spending power. The Labor Department reported that inflation-adjusted wages fell 1.6 percent last year, the sharpest drop since 1990. Energy costs were an additional burden, shooting up 18.2 percent last year - the biggest jump since 1979 - led by a nearly 54 percent rise gasoline costs.
And even as prospects remain bleak for jobs and income in 2010, energy prices are expected to rise again. On Tuesday, the government said gasoline should average $2.84 per gallon this year, up from $2.35 in 2009. For average motorists using about 50 gallons per month of gasoline, that means spending an extra $294 at the pump this year, or about $25 per month. That means fewer lattes and fast food runs or less driving. Or both.
The optimism traders had earlier in the year has been tempered by "prospects for pretty miserable demand" in January and February, said Tom Kloza of the Oil Price Information Service.
He noted that seasonal factors also hit oil prices Friday.
"Folks don't tend to drive that much or spend too much in January and February," he said.
Meanwhile, temperatures are expected to be above average across nearly all regions of the U.S. for the next 10 days, which should slow demand for heating oil.
In addition, the dollar was stronger, making it more expensive for holders of foreign currencies to purchase oil, which is priced in U.S. dollars.
Gasoline prices rose almost 3.2 cents to $2.757 per gallon to end the work week, according to AAA, Wright Express and Oil Price Information Service. Prices are about 16.3 cents higher than a month ago and about 96 cents higher than last year. Gas prices tend to lag oil prices because oil being traded now won't be delivered until next month.
Kloza predicts gas will peak at around $3 in May as more drivers hit the road in the spring and other economic activities, like construction, pick up. That could be further disincentive to spend.
"$3 is a psychological number," Kloza said. "When prices go above $3 per gallon, people cut back not just on fuel. They tend to have a real sour view of the economy."
"From a consumer perspective, there's no real reason for them to spend more," said William Baker, professor of marketing at San Diego State University. "When you look at the hit consumers have taken, the stagnant salaries and rising energy costs, it's difficult...to see any kind of sharp recovery real soon."
In other Nymex trading in February contracts, heating oil fell 3.69 cents to settle at $2.046 a gallon and gasoline slid 2.84 cents to close at $2.0454. Natural gas futures gained 10.3 cents to settle at $5.691 per 1,000 cubic feet.
In London, Brent crude for February delivery fell 71 cents to $77.11 a barrel on the ICE Futures exchange.
Source:© Copyright Guardian Online
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