January 6, 2009
Oil prices fall on latest batch of economic data that points to declining energy demand
COLUMBUS, Ohio (AP) — Oil prices fell Tuesday as fresh signs of a deepening U.S. recession trumped tensions in the Middle East and worries over natural gas shortages in Europe.
Light, sweet crude for February delivery fell 23 cents to $48.58 a barrel in trading on the New York Mercantile Exchange. Prices early on reached $50.47, the highest point since Dec. 1, before the National Association of Realtors reported that pending home sales fell to the lowest level on record in November.
A natural gas dispute between the Ukraine and Russia did effect heating oil prices in the United States.
The dispute shut down gas supplies to six countries and reduced gas deliveries to several others.
At least two Bulgarian cities were totally without gas, and nations like Turkey were turning to Iran to bolster their supplies.
Heating oil, a proxy for fuel oil used in Europe, rose 3 percent with expectations that customers there will switch from natural gas.
Traders began to sell crude once it reached $50 and began to realize that geopolitical problems were not enough to justify the rally, said Phil Flynn, an analyst at Alaron Trading Corp.
"At the end of the day it hasn't cost us one drop of oil yet," he said of the problems in the Middle East and Europe.
Traders looked instead at the latest batch of economic reports that suggest demand for energy may weaken further.
The government said orders to factories fell for a record fourth straight month in November. The 4.6 percent decline was nearly double the 2.5 percent drop economists expected.
The Realtors group said its seasonally adjusted index of pending sales for existing homes fell 4 percent to 82.3 from a downwardly revised October reading of 85.7 in October.
That's worse than was expected by economists surveyed by Thomson Reuters and the lowest reading in the eight-year history of the index.
The Commerce Department said weakness in factory orders in November reflected a big drop in demand for commercial aircraft. Weakness also was seen in autos, primary metals such as steel, and defense communications equipment.
Orders have been falling since August, including a 6 percent plunge in October, the biggest setback in eight years.
Meanwhile, an index of activity in the U.S. services sector contracted at a slower pace in December as new orders and employment improved. In a surprisingly upbeat reading, the Institute for Supply Management, a trade group of purchasing executives, said its services sector index rose to 40.6 in December from 37.3 in November. Wall Street economists surveyed by Thomson Reuters had expected the index to slip slightly to 37.
The index continues to signal the sector is contracting. A reading below 50 signals contraction, while a reading above 50 indicates growth.
"The housing number was horrible. Factory orders were miserable," said Peter Beutel of Cameron Hanover. "Those numbers had a negative effect on the market."
And demand for gasoline continues to be weak.
Consumption fell 1.8 percent for the week ended Friday and was down 3.5 percent from the same week a year ago, according to the weekly SpendingPulse report by MasterCard released Tuesday afternoon. The four-week moving average was even worse, falling 4 percent compared with a year ago and widening for the fourth straight week.
Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said the four-week moving average continues to move down as consumer sentiment worsens, unemployment moves higher and home values continue to fall.
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