Oil Steady After Falling on Signs Fuel Use Decline Will Spread

By Mark Shenk

Aug. 15 (Bloomberg) -- Crude oil was little changed after falling on speculation that fuel-consumption declines in the U.S. will spread to other countries as their economies slow.

Gasoline demand was down 2.1 percent through July as record prices and slower economic growth cut consumer spending, an American Petroleum Institute report showed Aug. 13. Europe's economy contracted for the first time since the introduction of the euro almost a decade ago, a report showed yesterday.

``The market is much more focused on demand destruction than on supply concerns,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``The concern now is that the demand destruction in the U.S. will spread like a virus to other countries.''

Crude oil for September delivery fell 25 cents to $114.76 a barrel at 8:32 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 57 percent from a year ago. They reached a record $147.27 on July 11. Yesterday, futures fell 99 cents, or 0.9 percent, to settle at $115.01 a barrel.

Futures climbed $2.99 a barrel Aug. 13 after an Energy Department report showed that U.S. gasoline supplies dropped 6.39 million barrels to 202.8 million barrels last week, the biggest decline since October 2002. Petroleum-product imports fell to the lowest since April 2005 and refinery operating rates were 1.1 percentage points lower, the report showed.

The report ``was one of the most bullish in a year,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``The overriding sentiment of the market is bearish because of the negative demand outlook.''

European Economy

European gross domestic product fell 0.2 percent in the second quarter from the first, when it increased 0.7 percent, the European Union statistics office in Luxembourg said yesterday.

Most energy and metals futures dropped as the U.S. currency advanced to a 5 1/2-month high versus the euro yesterday because of the European report. A strong dollar reduces the appeal of commodities to investors looking for an inflation hedge.

The dollar traded at $1.4808 per euro at 6:32 a.m. in Tokyo, after rising 0.6 percent yesterday and touching $1.4778, the strongest since Feb. 21. The U.S. currency was at 109.73 yen, following a 0.2 percent gain yesterday.

Exxon Mobil Corp. Chief Executive Officer Rex Tillerson said in an ABC News interview Aug. 13 that oil prices don't reflect supply and demand, and are being influenced by such factors as a weak dollar.

`Number of Causes'

``If you look at just basic fundamentals of supply and demand, clearly we've been at a price level that, my view has been for some time, is not reflective of strictly fundamental supply and demand, but also is reflective of a lot of uncertainty about the future of supply that you can attribute to any number of causes,'' Tillerson said.

Brent crude oil for September settlement declined 83 cents, or 0.7 percent, to $112.64 a barrel on London's ICE Futures Europe exchange yesterday.

Prices also fell because natural gas tumbled more than 3 percent after a government report showed that U.S. supplies rose 50 billion cubic feet last week. Some users can switch between oil-based fuels and gas, depending on cost.

Natural gas for September delivery fell 32 cents, or 3.8 percent, to settle at $8.136 per million British thermal units in New York. Futures are up 17 percent from a year ago.

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