Oil tries to advance after big drop

Shifts in consumer demand and modest strength in the dollar keep prices in check, despite concerns in Nigeria; gas prices also fall

By Adam Schreck

Associated Press Writer

Oil market investors tried but failed to start a rally in crude on July 24, leaving prices hovering below $125 a barrel. At the gas pump, prices continued their retreat.

The national average for a gallon of regular dropped more than a penny and a half to $4.026 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Retail diesel is down nearly half a cent to $4.788.

Falling prices at the filling station reflect the concern of many energy traders that the weakening U.S. economy is hurting demand. Analysts say that is helping keep oil prices from racing back higher.

Light, sweet crude for September delivery rose 12 cents to $124.56 a barrel on the New York Mercantile Exchange. The day’s gains followed a sharp drop on July 23, when oil tumbled $3.98 to settle at $124.44 a barrel, its lowest finish since June 4. The delivered price of Alaska North Slope crude oil fell $4.31 on July 23 to $122.94.

In overnight trading, oil rose as high as $126.01 as some investors tried to see if the market had reached a bottom and could rebound. But the gains couldn’t hold amid a growing belief that falling demand does not justify the recent high price.

Americans used 2.4 percent less fuel over the past four weeks than they did last year, the latest figures by the Energy Department’s Energy Information Administration show. While that may not sound like much, industry experts say it represents a significant shift by the world’s largest energy consumer. A bigger-than-expected increase in gasoline supplies only added to concerns that drivers are cutting back.

“We’ve grounded airplanes. People are driving less, they’re trading in their SUVs,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com. “For the foreseeable future — at least for the next six to 12 months — we have demand destruction.”

Cordier predicted prices could yet drop further, with oil possibly falling as low as $110 a barrel by September.

“People have changed their driving habits, and they’re not going to change back anytime soon,” he said.

A modestly stronger dollar helped keep prices in check on July 24, by discouraging traders who had been buying commodities as a hedge against inflation and a softer greenback.

“More than any other factor, a strong dollar would help take the air out of this market,” editors at energy consultancy Cameron Hanover noted in their daily market commentary.

Investors remained on guard over a threat by Nigeria’s main militant group on July 23 to destroy major pipelines in the oil exporting country within 30 days. The threat — which only weeks ago might have caused oil prices to spike — did little to push crude higher, however.

“We can only suggest that the market, finally weighed down by the specter of decreasing energy demand, may not be as responsive to geopolitical headlines as it once was,” MF Global analyst Edward Meir wrote in a research note.

—Petroleum News contributed to this article