Crude oil prices drop to lowest level since Feb. as summer driving season nears
By Steven Mufson,
Crude oil prices slid Monday to the lowest level since February as weak economic data and high prices dampened expectations for consumption just three weeks ahead of the summer driving season.
Oil analysts also said that the outcome of European elections — with candidates critical of government austerity measures winning in France and Greece — had also revived concerns about the stability of the euro zone. A stronger dollar also pushed oil prices down slightly.
The price of the benchmark West Texas Intermediate grade of crude oil fell 55 cents to $97.94 a barrel for June delivery, a drop of 11 percent since the 2012 peak of $109.77 reached Feb. 24.
U.S. gasoline prices have also eased slightly, edging down to $3.78 a gallon, down about 4 cents from a week ago and down 15.5 cents in the past month, according to AAA, though nine states still have prices of $4 a gallon or more.
While still steep, lower gasoline prices could defuse a potentially thorny campaign issue for President Obama. GOP presidential front-runner Mitt Romney has said that there is “no question” that Obama is to blame for high gasoline prices. Obama has blamed global supply and demand.
Fadel Gheit, oil analyst at Oppenheimer & Co., said the reasons for lower oil prices recently were “weak demand caused by slow economy; less fear of potential supply disruption; Obama’s threat to go after financial speculators; Saudi Arabia’s increased production to reduce prices and help economic recovery; [and] increased U.S. [oil] production.”
Oil analysts warned that crude prices could still firm up if the economic recovery picks up or if there are renewed fears of a supply disruption in the Persian Gulf.
“We’ve seen some disappointing economic numbers, and there are concerns over the European elections and the overall euro sovereign-debt issue,” said David Greely, head of energy research at Goldman Sachs. “But U.S. oil demand is holding up well given the high oil prices and the moderate pace of U.S. economic growth. We expect that U.S. economic growth of around 2 percent will continue to support U.S. oil demand.”
Recent financial deals to keep open some aging East Coast refineries have also eased concerns about gasoline prices in that region, and U.S. inventories are plentiful.
But Edward Morse, head of commodities research at Citigroup, said gasoline prices could increase as the peak driving season approaches.
“This summer looks like it may be slightly weaker than we thought it was going to be,” Morse said. “But it’s still a tight market, and summer gasoline is hard for refiners to make. We don’t think the worst is over for consumers, and I’d be surprised if there is not another price pickup before the July Fourth weekend.”
The reversal of the Seaway oil pipeline, which runs from Oklahoma to refineries along the Gulf Coast, would ease the bottleneck at Cushing, Okla., and raise prices there. The Cushing oil terminal is where the New York Mercantile Exchange prices its benchmark crude.
The global oil supply picture has been less dire than many oil traders expected.
Higher Saudi oil production has offset declines in Iran’s oil exports. These have been impeded by Europe’s decision to impose an embargo on imports from Iran and by the tightening of U.S. financial sanctions worldwide against companies buying oil from Iran.
In addition, Morse noted, Iraqi oil production and exports hit recent highs in April.
Supplies have been disrupted by local fighting in the Sudans, Syria, Yemen and Nigeria. And Iran remains a major wild card. For now, however, geopolitical anxieties have eased.
Greely said there is little premium in the oil price due to fears of a conflict over Iran.
“It seems like the concerns over Iran have receded into the background a little bit,” he said. “The market has been much more focused on the economy. In both Washington and Iran, the rhetoric has died down a little bit.”
Global demand remains uncertain, given the debate over austerity in Europe and signs that China’s breakneck growth may be slowing somewhat.
In addition, now that Japan has closed all of its 54 nuclear power plants in the wake of last year’s tsunami, the Asian economic giant is importing 300,000 to 400,000 barrels of fuel oil a day. Several other countries have been building up inventories, which were drawn down in Europe during the conflict in Libya last year.