Oil fell to its lowest price in three months on Friday, briefly touching the $111 level after the dollar muscled higher and the Organisation of the Petroleum Exporting Countries (Opec) predicted the world’s thirst for fuel next year will fall to its lowest point since 2002.
Light, sweet crude for September delivery fell by $1,24 to settle at $113,77 a barrel on the New York Mercantile Exchange after falling to $111,34, its lowest price since May 2 and more than $35 — or 24% — below its July 11 trading record above $147.
As high energy costs force countries around the globe to cut back on consumption, crude prices have plummeted and are now within striking distance of $100 a barrel, a level first reached on February 19.
Crude fell after the dollar gained strength against the euro on United States data showing that industrial output rose more than expected in July.
The 15-nation euro has lost some of its lustre compared with its American rival amid growing evidence that European economies are slowing. The euro bought $1,4675 in trading on Friday, down from $1,4811 late on Thursday.
A rising dollar typically pushes oil prices lower as investors who buy crude and other commodities as hedges against inflation start dumping their positions to cut their losses. A stronger greenback also makes dollar-denominated commodities more expensive to overseas buyers, further eroding demand.
”The dollar is on fire again, so that’s causing people to re-evaluate everything,” said Phil Flynn, oil analyst at Alaron Trading Corp in Chicago. ”It means oil prices could fall dramatically. We could see prices get to double digits if this continues.”
An Opec forecast of lower demand also put downward pressure on prices.
In its monthly oil report, the organisation forecast world appetite for oil this year overall will fall by 30 000 barrels a day. While forecasting demand growing by a daily one million barrels a day this year, and another 900 000 barrels in 2009, the report noted that world demand growth next year will also be ”the lowest since 2002”, with demand growth from the major industrialised countries actually declining.
”They’re basically saying we could have an oil glut because demand is slowing,” Flynn said. ”It’s obvious that high prices do slow down demand and the market works.”
The Opec report came two days after the US Department of Energy highlighted the ongoing drop in US demand for energy as Americans struggle with high costs for petrol, food and other goods.
Oil’s steady decline has continued despite the simmering week-long conflict between Russia and Georgia over two breakaway provinces.
Western leaders worked on Friday to persuade Russia to pull troops out of Georgia, but regional tensions soared after a top Russian general warned that Poland could face attack over its missile defence deal with the US.
British oil company BP said on Thursday it has resumed pumping gas into the Baku-Tbilisi-Erzurum pipeline that runs through Georgia, but two oil pipelines remained closed. BP’s Baku-Supsa oil pipeline was shut as a precaution, and the larger Baku-Tbilisi-Ceyhan line, a key supplier to Western countries, remains shut after a fire earlier this month on the Turkish section of the line.
Analysts noted that the conflict in Georgia, while likely not driven primarily by energy concerns, highlights Moscow’s influence over oil and natural gas reserves in the region. Russia exports more oil than any country except Saudi Arabia, and is the world’s leading producer of natural gas.
Only weeks ago, such a clash would likely have sent oil prices soaring. But the market has largely ignored the fighting in Georgia because traders have already priced in the geopolitical risk, analysts say. Crude’s month-long nosedive has also made it harder for bullish traders to spark a rally, despite a possible threat to oil installations.
Also weighing on prices on Friday was the expiration of September oil contract options at the end of the day, a trading cycle that often increases volatility.
In London, September Brent crude fell by $1,13 to settle at $112,55 a barrel. — Sapa-AP