Oil Extends Decline as Global Economy Slows, Storm Danger Eases

By Margot Habiby and Samantha Zee

Aug. 6 (Bloomberg) -- Crude oil fell for a third day, trading below $119 a barrel amid signs demand may be curtailed by slowdowns in the U.S. and European economies and as the storm Edouard was downgraded to a tropical depression over Texas.

Oil dropped to its lowest level since early May yesterday as the services sectors in the U.S. and U.K. contracted in July, and European retail sales fell the most in at least 13 years in June. Edouard made landfall on the Texas coast, idling 6 percent of U.S. Gulf of Mexico oil output as of yesterday morning.

``Demand numbers have been weak here for quite a period of time,'' said Roger Read, an analyst at Natixis Bleichroeder Inc. in Houston. Yesterday's numbers ``may confirm expectations, but they're not a shock to the system.''

Crude oil for September delivery fell 75 cents, or 0.6 percent, to $118.42 a barrel at 9:07 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, oil fell $2.24, or 1.8 percent, to settle at $119.17 a barrel in New York. Earlier, it touched $118, the lowest since May 5.

Oil has lost more than $28 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted U.S. consumers to limit spending. On Aug. 3, the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 3.5 percent, its biggest loss since March.

U.S. Federal Reserve policy makers left interest rates unchanged yesterday and said inflation risks are a ``significant concern.''

Gasoline Falls

Gasoline for September delivery lost 4.38 cents, or 1.5 percent, to $2.9564 a gallon on the Nymex yesterday, the lowest close since May 1. Futures fell 13 percent last month, the biggest drop since September 2006, as a slowing economy cut demand for the motor fuel.

Regular gasoline at the pump, averaged nationwide, fell 1 cent to $3.871 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site. Pump prices reached a record $4.114 a gallon on July 17, as higher prices curbed demand.

U.S. gasoline demand fell for a 15th consecutive week, as motorists cope with high fuel prices by driving less, a MasterCard Inc. report yesterday showed. Demand last week dropped 3.4 percent from a year earlier, MasterCard, the second- biggest credit-card company, said in its weekly SpendingPulse report.

Service industries in the U.S. shrank in July for a second straight month, signaling the slowdown in growth broadened. U.K. services from banks to airlines also contracted in July, and factory production unexpectedly dropped for a fourth month in June, evidence the economy may be shrinking.

European Data

European retail sales dropped by the most in at least 13 years in June as a surge in oil and food costs left consumers with less money to spend on other goods.

``We were down big overnight, and it really started on the European soft market data on manufacturing,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Retail sales were pretty lousy, leading everyone to surmise that the European economy isn't immune to the slowdown here in the U.S.''

Gold, platinum and wheat dropped on speculation slower growth will curb demand and as a stronger dollar dulled the appeal of commodities as an inflation hedge.

Edouard's wind speeds remained below hurricane strength when it struck the Texas coast, and the storm was downgraded to a tropical depression, according to the National Hurricane Center.

Slowing Winds

The system's winds slowed from 65 miles (105 kilometers) per hour earlier in the day, and the storm was 35 miles north- northeast of Houston, the center said in an advisory on its Web site shortly before 4 p.m. local time.

The storm forced energy producers to idle 6 percent of oil output in the part of the Gulf under U.S. government jurisdiction, according to the Minerals Management Service, part of the Department of the Interior. Companies evacuated 154 production platforms and 9 rigs as a precaution.

``Very little oil production seems to have been shut in by Edouard,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``Gasoline stocks are high enough to limit any crisis from refinery shutdowns, so the market's returning its attention to the weak demand picture.''

Hurricane forecasters from Colorado State University yesterday raised the number of Atlantic storms they expect this year to 17, including nine hurricanes, five of them major. The hurricane season, which runs through Nov. 30, should be ``much more active'' than those between 1950 and 2000, the report said.

Gasoline Stockpiles

U.S. gasoline stockpiles are 3 percent above their five- year seasonal norm at 213.6 million barrels, according to the Energy Department. The department will probably say gasoline supplies fell 1.5 million barrels last week in its weekly report today, a Bloomberg survey predicted.

Brent crude for September settlement fell $2.98, or 2.5 percent, to $117.70 a barrel on London's ICE Futures Europe exchange. The closing price was more than 20 percent below a record $147.50 a barrel reached July 11.

Kuwait ``isn't worried'' about the recent price decline and doesn't expect the Organization of Petroleum Exporting Countries to reduce production quotas when it meets next month, Oil Minister Mohammed al-Olaim said in an interview today.

OPEC boosted output by 0.7 percent in July to 32.825 million barrels a day, a Bloomberg News survey showed yesterday. The gains were led by Nigeria, which had its highest production figure since March, and Saudi Arabia. The kingdom's output reached a three-year high.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.