Oil Falls to Seven-Week Low on Signs Fuel Demand Will Decline

By Mark Shenk

July 25 (Bloomberg) -- Crude oil fell to a seven-week low on signs that global fuel consumption will drop because of a slowing economy, and Saudi Arabia boosts output to lower prices.

Oil prices have slipped more than $24 a barrel from the $147.27 record on July 11 on signs of declining demand in the U.S. Saudi Arabia, the world's largest oil exporter, increased output by 200,000 barrels a day in July, according to preliminary estimates from PetroLogistics Ltd.

``There's more concern about the economy seeping into the oil market,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``We are getting signals that the slowdown will be longer and deeper than previously forecast.''

Crude oil for September delivery fell $2.74, or 2.2 percent, to $122.75 a barrel at 10:05 a.m. on the New York Mercantile Exchange. The contract is down 5.2 percent this week. Futures touched $122.50 a barrel, the lowest price for a contract closest to expiration since June 5.

New-home sales in the U.S. in June decreased 0.6 percent to a 530,000 pace, from an upwardly revised 533,000 in May, the Commerce Department said today in Washington. A separate report showed orders for durable goods unexpectedly rose in June.

``The durable goods report was surprisingly strong, but that's just one number in a big constellation of bearish numbers,'' Mueller said. ``The housing sector is still very weak, and that's hurting the entire economy.''

OPEC Output

The 13 members of the Organization of Petroleum Exporting Countries will provide 32.9 million barrels a day this month, up 200,000 barrels from June, PetroLogistics founder Conrad Gerber said in an e-mail from Geneva. Saudi Arabia accounts for the entire gain.

``It looks like the market has shifted from focusing on geopolitical concerns to macroeconomic concerns,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Iran, which produced about 3.85 million barrels of oil a day last month, has warned it may blockade the Strait of Hormuz, the export channel for a quarter of the world's crude, if it's attacked. The country has the second-biggest proved oil reserves.

Brent crude oil for September settlement declined $2.95, or 2.3 percent, to $123.49 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.