Crude Oil Falls for a Second Day as U.S. Fuel Demand Falters

By Christian Schmollinger

June 26 (Bloomberg) -- Crude oil fell for a second day in New York after a report yesterday showed U.S. fuel demand dropped to the lowest level since January 2007 as record prices limited purchases.

The upward price trend of oil could ease in the years ahead as U.S. gasoline use may have peaked in 2007, Daniel Yergin, chairman of Cambridge Energy Research Associates, told a congressional panel yesterday. Consumption for the week to June 20 has slipped 5 percent this year from its peak of 21.3 million barrels a day on Jan. 4, data from the Energy Department shows.

``With demand noticeably down that's a bit more of a story,'' said Gerard Burg, the energy economist at National Australia Bank Ltd. in Melbourne. ``Overall demand is declining.''

Crude oil for August delivery fell as much as 81 cents, or 0.6 percent, to $133.74 a barrel in after-hours electronic trade on the New York Mercantile Exchange. It was at $133.81 a barrel at 2:43 p.m. Singapore time. Yesterday, futures dropped $2.45, or 1.8 percent, to settle at $134.55 a barrel. Oil touched a record $139.89 on June 16.

Brent crude oil for August settlement declined as much as 76 cents, or 0.6 percent, to $133.57 a barrel on London's ICE Futures Europe exchange. It was at $133.71 a barrel at 2:43 p.m. Singapore time. It fell $2.13, or 1.6 percent, to settle at $134.33 a barrel yesterday. Prices climbed to a record $139.32 on June 16.

The average retail unleaded gasoline price in the U.S. has climbed 33 percent this year, reaching a record $4.08 a gallon on June 15.

Gasoline

Gasoline consumption has averaged 9.28 million barrels a day for the past four weeks, down 2.1 percent from last year, the department said yesterday. Motor-fuel purchases fell 2.7 percent last week in the ninth consecutive decline, MasterCard Inc. said in a June 25 report.

``The Energy Department numbers have been lagging some of the other indicators of fuel demand for the past few months such as the MasterCard announcements,'' said National Australia's Burg. ``So this potentially just brings them in line.''

Gasoline for July delivery rose 1.09 cents, or 0.3 percent, to $3.4050 a gallon in New York. Yesterday, it fell 6.94 cents, or 2 percent, to settle at $3.3941 a gallon. Futures reached a record $3.5762 a gallon on June 16.

Brent crude oil for August settlement was at $133.91 a barrel, down 42 cents, on London's ICE Futures Europe exchange at 12:19 p.m. Singapore time. It fell $2.13, or 1.6 percent, to settle at $134.33 a barrel yesterday. Prices climbed to a record $139.32 on June 16.

Nigerian Strike

A strike by Nigerian white-collar oil workers against Chevron Corp.'s local unit entered a third day, a union official said. Production remained unaffected.

The union and management will hold talks with Petroleum Minister H. Odein Ajumogobia tomorrow and with Abubakar Yar'Adua, head of the state-owned oil company, on June 27.

The strike will continue through the talks ``as long as we are not getting what we want,'' Jonathan Omare, secretary of the Chevron branch of the Petroleum and Natural Gas Senior Staff Association of Nigeria, or Pengassan, said by telephone.

``It's possible the strike may linger but it's more an accumulation of news in Nigeria,'' Burg said. ``With the number of other outages there, it's just one more concern.''

Crude oil also fell as U.S. crude oil inventories unexpectedly increased for the first time in six weeks.

Crude stockpiles gained 803,000 barrels to 301.8 million last week, the Energy Department said. A 1.1 million-barrel drop was forecast by analysts in a Bloomberg News survey.

Fuel Inventories

Gasoline stockpiles fell 153,000 barrels to 208.8 million barrels, the department said. Analysts surveyed before the report were split over whether supplies would rise or fall.

Distillate-fuel inventories rose 2.82 million barrels to 119.4 million barrels in the week ended June 20, the seventh- straight increase, the report showed. A 2 million-barrel gain was forecast. Stockpiles last week were 1.1 percent higher than the five-year average, the department said.

Demand for distillate fuel, a category that includes heating oil and diesel, averaged 4.06 million barrels a day, down by 1.1 percent from a year earlier.

Oil was unchanged earlier yesterday after the Federal Reserve left its benchmark interest rate at 2 percent, ending the most aggressive series of rate cuts in two decades, as record energy prices threaten to increase inflation.

Futures have almost doubled over the past year as investors looking to hedge against the dollar's drop have purchased commodities, helping push oil, gold and corn to records. Rising Asian fuel consumption and falling output in the North Sea, Russia and Mexico have contributed to the rally.

``This might have impacted more of the other commodities such as gold,'' said Burg. ``It was the most likely outcome and was probably factored into the market already.''

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.