Oil Is Steady After Falling as U.S. Demand Drops on High Prices

By Christian Schmollinger

June 26 (Bloomberg) -- Crude oil was little changed after falling more than $2 a barrel yesterday as a report showed U.S. fuel demand fell to its lowest level since January 2007 as record prices limited purchases.

Fuel demand averaged 20.2 million barrels a day in the past four weeks, down 2.3 percent from a year earlier, the Energy Department said yesterday in a report. Consumption 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. Retail gasoline prices have climbed 31 percent over that same period.

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

Crude oil for August delivery was at $134.47 a barrel, down 8 cents, at 10:21 a.m. Singapore time in after-hours electronic trade on the New York Mercantile Exchange. 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.


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, 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 0.59 cent to $3.40 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, Nigeria

Brent crude oil for August settlement was at $134.12 a barrel, down 21 cents, on London's ICE Futures Europe exchange at 10:19 a.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.

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.''

Stockpiles Gain

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.

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.

Interest Rates

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.