In The News

Oil prices steady despite signs that demand is falling

COLUMBUS, Ohio — Oil prices fluctuated Tuesday even as the government reported that gasoline prices recorded their largest drop ever in October and prices for home heating oil, natural gas, and liquefied petroleum gas fell substantially.

Light, sweet crude for December delivery rose 54 cents to $56.03 a barrel on the New York Mercantile Exchange. The contract Monday fell $2.09 to settle at $54.95, the lowest since January 2007.

The Labor Department reported Tuesday that wholesale prices dropped by 2.8 percent in October, the biggest one-month decline on records that go back more than 60 years. The previous record was a 1.6 percent fall in October 2001, the month after the terrorist attacks.

The report showed that energy prices dropped by 12.8 percent in October, the biggest one-month fall since a 14 percent decline in July 1986. All types of energy showed big declines with gasoline falling by a record 24.9 percent, surpassing the old mark of a 22.1 percent drop in March 1986.

Home heating oil prices fell 9.6 percent, natural gas intended for home uses fell by 5.9 percent, and liquefied petroleum gas dropped by 27.6 percent, the biggest decline in more than three decades.

Some market analysts believe that crude prices are steadying with more investors comfortable buying oil in the mid $50 range.

Crude prices have fallen 63 percent since reaching a record $147.27 in mid-July.

Oil markets had little reaction to the seizure by pirates of a Saudi supertanker loaded with $100 million in crude oil. The ship on Tuesday was anchored within sight of impoverished Somali fishing villages. Never before have Somali pirates seized such a giant ship so far out to sea — and never a vessel so large.

The latest hijackings highlighted the vulnerability of even very large ships and the inability of naval forces to intervene once bandits are on board.

Olivier Jakob, managing director of oil market research firm Petromatrix in Switzerland, said energy traders would likely send prices higher only if a second tanker were targeted.

"We need to see how this case resolves itself," he said. "If we were to have a similar type of hijacking on another tanker, I think the markets would take notice."

Many industry executives believe the fallout in the oil markets is likely to be short-lived.

The head of China's biggest offshore energy producer said Tuesday he thinks oil prices are likely to return to a range of $70 to $80 per barrel, though he did not say when.

CNOOC chairman Fu Chengyu said a conference on Chinese business in Spain that the current price level is based on a panic, but would linger until confidence is restored in the market.

With ripples from the mortgage crisis still rippling across the glob, it is difficult to say when that may happen.

Another executive recently warned of a serious decline in demand in China.

China National Petroleum Corp., the country's biggest oil company, has suffered a "fairly big impact," its president, Jiang Jiemin, said in a speech Friday to employees, according to a transcript on the company's Web site. Jiang gave no details.

"Especially since September, the impact is more obvious and prominent. Basically, it is reflected in such things as a sharp shrinking of consumer demand," Jiang said, according to the transcript.

Many industry experts had looked to China and India to continue buying crude to fuel their booming economies, even if Western nations entered recession. There are growing indications that such emerging economies are still closely linked to the fortunes of Europe and the United States.

Even outside of Nymex, where the benchmark crude is West Texas intermediate, exporting nations both within OPEC and in places like Mexico and Russia are seeing massive declines in crude prices.

The U.S. is a major energy consumer and demand for gasoline and other fuels is plummeting fast.

Retail gasoline prices in the U.S. fell for an 18th week since the July 4th holiday. Prices plummeted 15.2 cents, or 7.3 percent, to a national average of $2.072 a gallon, according to the Energy Information Administration. Prices are down more than $1 from a year ago.

Prices at the pump fell nearly 2 cents overnight to $2.068 nationally, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices have fallen almost 90 cents in the past month.

Since last week, Texas, Minnesota and Colorado joined Ohio as states were average retail gasoline prices fell below $2, according to the EIA.

In other Nymex trading, gasoline futures fell less than a penny to $1.168 a gallon. Heating oil rose less than a cent to $1.796 a gallon while natural gas for December delivery rose 8 cents to $6.613 per 1,000 cubic feet.

In London, December Brent crude rose 14 cents to $52.45 on the ICE Futures exchange.

Associated Press writers George Jahn in Vienna, Austria, Alex Kennedy in Singapore and Adam Schreck in Dubai, United Arab Emirates, contributed to this report.

Lyndon Finney of  The Trucker staff can be contacted to comment on this article at [email protected] .