Monday, January 7, 2008

Crude Oil Falls More Than $2 on Signs Fuel Demand Will Decline

By Mark Shenk

Jan. 7 (Bloomberg) -- Crude oil fell more than $2 a barrel, the most since November, on concern slowing economies in the U.S. and Europe and warm weather in the Northeast will crimp fuel use.

Energy prices led the decline in commodities after an index of executive and consumer sentiment in countries using the euro slipped to the lowest since March 2006. The European Commission in Brussels released the report today. The National Weather Service forecast higher-than-normal temperatures through Jan. 20 in the Northeast.

``High energy prices are part of the problem with the economy,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``They are hurting consumers and may prove to be unsustainable.''

Crude oil for February delivery fell $2.82, or 2.9 percent, to settle at $95.09 a barrel at 2:51 p.m. on the New York Mercantile Exchange, the lowest close since Dec. 24. It was the biggest drop since Nov. 28. Futures reached a record $100.09 a barrel on Jan. 3. Prices are up 69 percent from a year ago.

Home-heating demand in the Northeast, the region responsible for 80 percent of U.S. heating-oil use, will be 34 percent below normal for the next week, said Weather Derivatives, a forecaster in Belton, Missouri.

``It's quite warm in the Northeast, and as a result heating oil is the weakest sector in the energy complex,'' said Tim Evans, an analyst with Citigroup Global Markets Inc. in New York.

Heating oil for February delivery fell 9 cents, or 3.4 percent, to $2.5935 a gallon in New York. It was the biggest decline since Aug. 6.

Oil fell more than $1 in New York on Jan. 4 after a report showed U.S. unemployment jumped to a two-year high. The U.S. and Europe consume more than 40 percent of the world's oil.

Economic Focus

``The focus of the market shifted to economic concerns late last week,'' said Tom Bentz, a broker at BNP Paribas in New York. ``Prices popped on the Iran boat situation but the gains soon evaporated.''

Crude oil in New York rose as much as 49 cents earlier when CNN reported that five vessels from Iran's Revolutionary Guard threatened to fire on three U.S. Navy boats on Jan. 5 in the Strait of Hormuz, before retreating. CNN cited the Pentagon.

Almost a quarter of the world's oil flows through the strait, a narrow waterway between Iran and Oman at the mouth of the Persian Gulf.

Brent crude for February settlement fell $2.40, or 2.5 percent, to close at $94.39 a barrel on London's ICE Futures Europe exchange. Futures touched $98.50 on Jan. 3, the highest intraday price since trading began in 1988.

Prices Justified

Venezuela, the biggest oil exporter in the Americas, opposes an increase in oil output from the Organization of Petroleum Exporting Countries because a declining dollar and higher costs justify $100-a-barrel prices.

``We have enough oil in the market, we have a good level of inventories,'' Energy and Oil Minister Rafael Ramirez said today at a press conference in Quito, Ecuador. ``Currently we see the price of oil as fair for oil producers.'' The cost of goods and services for oilfield development has tripled, he said, without providing specifics.

OPEC increased oil production 1.2 percent in December as the United Arab Emirates finished maintenance of fields, a Bloomberg News survey showed. Members pumped an average 32.07 million barrels a day last month, up 370,000 barrels from November, according to the survey of oil companies, producers and analysts.

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