Oil Falls for a Third Day as Gasoline Drops on Weak Fuel Demand

By Gavin Evans

Aug. 10 (Bloomberg) -- Crude oil fell for a third day in New York after gasoline futures declined on signs of slowing seasonal demand for auto fuel late in the U.S. summer.

Oil also dropped from a five-week intraday high of $72.84 a barrel on Aug. 7 as the dollar traded near a one-week high against the euro, eroding investor demand for commodities priced in the U.S. currency. Crude prices around $70 are “not bad” and are necessary to maintain investment, OPEC President Botelho de Vasconcelos told reporters in Angola yesterday.

“Oil’s looking a little bit vulnerable to some more downside in the first couple of days this week,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. The dollar’s rally “really undermines a lot of these commodities including oil,” he said.

Crude oil for September delivery fell as much as 71 cents, or 1 percent, to $70.22 a barrel in after-hours electronic trading on the New York Mercantile Exchange, and traded at $70.39 at 2:18 p.m. in Singapore.

The contract declined 1.4 percent to $70.93 a barrel on Aug. 7, its lowest settlement in a week, as the dollar climbed and gasoline futures dropped the most in seven sessions.

New York oil futures gained 87 percent in the past six months as rising equity markets buoyed investor confidence, and the falling U.S. dollar made commodities more attractive. Prices reached an eight-month high of $73.38 a barrel on June 30.

While the decline in the U.S. jobless rate to 9.4 percent was better than expected, it remains high “and that doesn’t bode well for demand at least in the short term,” Hassall said. Seasonal motoring demand in the U.S. also seems to have been “fairly muted,” he said.

June Highs

“Oil looked like it was struggling on the charts as well up around the June highs,” he said. “That contributed to the selling pressure on Friday.”

Brent crude oil for September settlement declined as much as 43 cents, or 0.6 percent, to $73.16 a barrel on London’s ICE Futures Europe exchange, and was at $73.23 at 2:18 p.m. Singapore time.

The dollar traded at $1.4209 per euro from $1.4183 in New York on Aug. 7, when it rose to $1.4155, the highest level since July 31.

The dollar remains a “key” driver for energy prices and oil is unlikely to set fresh highs this year unless the currency resumes its decline, Hassall said.

Weak demand through late summer and the “massive overhang of stockpiles” in the U.S. may also limit any price gains from storms and hurricanes in the Gulf of Mexico, he said.

Gasoline

Gasoline for September delivery dropped as much as 0.8 percent to $1.9925 a gallon, and traded at $1.9933 at 2:19 p.m. Singapore time. Prices declined 2.6 percent to $2.0081 on Aug. 7, the lowest settlement since July 30.

U.S. gasoline demand usually peaks June through August. Refiners there cut production in the three weeks ended July 31. Gasoline stockpiles at that date were 2.9 percent higher than a year earlier, while distillate stocks were 24 percent higher.

Total daily fuel use averaged 18.9 million barrels in the four weeks ended July 31, 3.1 percent less than a year earlier, the Energy Department said last week.

A low-pressure weather system south of the Cape Verde Islands in the eastern Atlantic may strengthen to a tropical storm as it moves west during the next 48 hours, the U.S. National Hurricane Center said on its Web site.

Production may be shut down and tanker traffic delayed in the Gulf of Mexico if storms and hurricanes strike the region. The North Atlantic hurricane season runs from June through November.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net