Crude Oil Falls for a Third Day as U.S., Japanese Demand Drops

By Grant Smith and Christian Schmollinger

July 24 (Bloomberg) -- Crude oil fell for a third day after reports showed declining demand in the U.S. and Japan, two of the three largest oil-consuming countries, as high prices crimp fuel purchases.

U.S. fuel demand averaged 19.9 million barrels a day last week, the lowest since January 2007, the Energy Department said yesterday. Japan imported 0.7 percent less oil in June than a year ago, the first decline in nine months, the Ministry of Finance said today.

``People are cautious to go back into the market after the big drop in prices,'' said Gerrit Zambo, a trader at BayernLB in Munich. ``They're talking again about a reduction in demand due to high prices.''

Crude oil for September delivery fell as much as 82 cents, or 0.7 percent, to $123.62 a barrel on the New York Mercantile Exchange. The contract traded at $124.13 a barrel at 9:36 a.m. London time.

Yesterday, oil dropped $3.98, or 3.1 percent, to settle at $124.44 a barrel, the lowest close since June 4.

Futures have fallen 16 percent from a record $147.27 reached on July 11. Oil has tumbled as a stronger U.S. dollar limited the appeal of commodities as a hedge against inflation and high prices cut fuel consumption.

``Oil prices are at a point that will bring about demand- side adjustments that will ultimately cause prices to be at a lower level,'' said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney.

Gasoline Supplies

Prices also fell as the Energy Department report showed that gasoline supplies rose 2.85 million barrels last week. Stockpiles of distillate fuel, a category that includes heating oil and diesel, climbed 2.42 million barrels.

Brent crude oil for September settlement was at $125.14 a barrel, down 15 cents, on London's ICE Futures Europe exchange at 9:37 a.m. London time. It dropped $4.26, or 3.3 percent, to close at $125.29 a barrel yesterday, the lowest settlement since June 4.

Demand has declined for three straight weeks, the Energy Department report showed. U.S. fuel consumption averaged 20.3 million barrels a day in the past four weeks, down 2.1 percent from a year earlier, the department said.

Crude-oil inventories dropped 1.56 million barrels to 295.3 million. Stockpiles were forecast to decline 675,000 barrels, according to the survey results.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net.