Oil prices tumble below $61 as gas supplies surge

The Nation

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July 8, 2009

Anonymous The Salem News Wed Jul 08, 2009, 12:28 PM EDT

NEW YORK (AP) — Oil prices sank below $61 per barrel Wednesday as the government reported unused gasoline held in storage surged yet again. Retail gas prices have fallen every day for more than two weeks.

Energy markets are undergoing an extended sell-off, the longest this year, with new economic reports dampening optimism about any economic recovery.

Benchmark crude for August delivery fell 3.5 percent, or $2.21, to $60.72 a barrel on the New York Mercantile Exchange.

In just over one week, oil prices have fallen more than 17 percent.

"The recession is far from over," said analyst Stephen Schork. "Perhaps the run-up in prices was a bit overstated."

Crude prices by last week had more than doubled from lows reached January, when a barrel of crude cost just over $30. That was just six months removed from record highs near $150 per barrel last summer.

Cheap oil sparked a new round of investment, as did a dollar that had been weakened by government efforts to bail out major banks and automakers.

Crude is priced in the dollar, so it effectively becomes cheaper internationally.

Yet dismal economic data continues to emerge and the fundamentals of supply and demand appeared to take control of the market again last week.

International Monetary Fund on Wednesday lowered its global economic forecast, the latest that would not support high energy prices.

Since peaking at $73.38 last Tuesday, crude futures have fallen by almost $13 per barrel. Gasoline, heating oil and natural gas futures are also tanking.

The Organization of Petroleum Exporting Countries predicted Wednesday that demand for crude has fallen so sharply, it will take another four years to recover to 2008 levels.

Americans are driving billions fewer miles than they had in recent years with millions losing their jobs.

Even though refiners have been slashing production, gasoline continues to pile up.

The Department of Energy reported Wednesday that gasoline supplies grew by another 1.9 million barrels last week, the fifth straight week that storage levels have grown.

The volatile energy markets may lead to increased scrutiny, both in the U.S. and overseas.

Federal regulators said Tuesday they would examine whether the government should impose limits on the number of futures contracts in oil and other energy commodities held by speculative traders.

Concerns about the affect of volatile energy prices has spread overseas as well. It will be one of the topics discussed by world leaders meeting in Rome for the Group of Eight summit.

In an editorial published by The Wall Street Journal, British Prime Minister Gordon Brown and French President Nicolas Sarkozy also called for closer government oversight of the oil-trading markets.

Retail gasoline prices dropped again overnight, the 16th straight day, to a new national average of $2.593 per gallon. Last year, prices were above $4 at this time, according to AAA and the Oil Price Information Service.

In other Nymex trading, gasoline for August delivery slid by 6.5 cents to $1.6682 a gallon and heating oil lost about 6.2 cents to $1.5386. Natural gas for August delivery fell 6.7 cents to $3.362 per 1,000 cubic feet.

In London, Brent prices shed $2.02 to $61.21 a barrel on the ICE Futures exchange.