Oil Is Steady After Biggest Monthly Decline Since December 2004

By Mark Shenk

Aug. 1 (Bloomberg) -- Crude oil was little changed after falling more than $2 a barrel, capping the biggest one-month decline since December 2004, as a slowing U.S. economy caused fuel consumption to weaken to the lowest in three years.

The economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, curbing fuel demand. Consumption averaged 20.7 million barrels a day in the past 12 months, the lowest for the period since 2004-2005, according to U.S. Energy Department data.

``Expectations about the economy have deteriorated, which is weighing on the oil market,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``With demand so poor, we have to re-examine price expectations. The market will be guided by the economic outlook here, in Europe and in the emerging markets.''

Crude oil for September delivery fell 2 cents to $124.06 a barrel at 8:29 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 62 percent from a year ago. They dropped 11 percent in July. Yesterday, futures fell $2.69, or 2.1 percent, to settle at $124.08 a barrel.

Oil prices have slipped more than $23 a barrel from the $147.27 record on July 11 on signs of declining demand in the U.S., which consumed about 24 percent of the world's crude in 2007, according to BP Plc.

`Depressed Demand'

``A weak economy and high prices don't usually coincide with demand growth,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``It's becoming clear that demand should be depressed through the end of the year.''

The U.S. economy expanded less than forecast in the second quarter as the drag from housing and rising unemployment blunted the impact of federal tax rebates.

The economy grew at a 1.9 percent annualized rate after expanding 0.9 percent in the first quarter, the Commerce Department said in Washington. The report also showed a recession may have begun in the final three months of 2007, as gross domestic product was revised to show a contraction in the period.

Energy-company profits have climbed with the price of oil. Exxon Mobil Corp., the world's biggest oil company, posted a smaller increase in second-quarter profit than analysts estimated after production slid the most in at least a decade. Record prices allowed Exxon Mobil to achieve the highest profit ever for a U.S. company without one-time gains.

Shell, Eni, Repsol

Royal Dutch Shell Plc, Eni SpA and Repsol YFP SA, posted higher second-quarter earnings, boosted by record oil prices which countered slower production. Shell is Europe's biggest oil company and Eni and Repsol are the biggest Italian and Spanish oil companies respectively.

Gasoline for September delivery fell 0.1 cent to $3.0699 a gallon in New York. Gasoline for August delivery expired at the close of floor trading yesterday after declining 8.71 cents, or 2.8 percent, to settle at $3.048 a gallon. Futures reached a record $3.631 a gallon on July 11.

Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.7 cents to $3.909 a gallon, AAA, the nation's largest motorist organization, said on its Web site yesterday. Pump prices reached a record $4.114 a gallon on July 17. Diesel prices fell 1.6 cents to $4.698 a gallon, the AAA said. Diesel reached a record $4.845 on July 17.

``We found a slowdown in same-store diesel of 4 to 4.5 percent across the board,'' Marathon Oil Corp. refining chief Gary Heminger said on a conference call yesterday with analysts. One reason is that truckers are driving at lower speeds, ``which has really taken an improvement of about 4 percent in their miles per gallon, which has dropped demand.''

Marathon is the U.S. Midwest's largest refiner.

U.S. automakers have lost money and market share because of higher gasoline prices. General Motors Corp., Ford Motor Co. and Chrysler LLC had their credit ratings lowered one step further into junk status by Standard & Poor's yesterday.

Brent crude oil for September settlement declined $3.12, or 2.5 percent, yesterday to close at $123.98 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.