Crude’s fall now $9 in two days
The cost of oil dropped in dramatic fashion Tuesday, as a stronger dollar and economic jitters helped push crude futures down more than $5 to $136.04 a barrel.
Oil’s tumble is the second in as many days, reversing course after a relentless rise that yielded a record-high price of $145.85 a barrel July 3 -- double the year-earlier price -- and triggered records for retail gasoline and diesel prices.
Traders sent light, sweet crude for August delivery down $6.23 a barrel at one point, before ending the day down $5.33 on the New York Mercantile Exchange. Crude has fallen more than $9 this week.
In explaining the fall, some analysts cited concerns that weakening economies would cut into global oil demand.
“We have strong concerns about the sharp rise in oil prices,” the Group of 8 countries said in a statement from their summit in Japan. “The world economy is now facing uncertainty and downside risk persists.”
Other reasons for the price slump include a rebounding dollar, a reduced threat to U.S. production from Hurricane Bertha and an easing of tensions over Iran’s nuclear enrichment program. A declining dollar has helped boost oil prices this year; investors often buy commodities such as oil as a hedge against inflation when the dollar weakens.
Stocks responded with an oil-slicked surge. The market also got a boost from speeches by Federal Reserve Chairman Ben S. Bernanke, Treasury Secretary Henry M. Paulson Jr. and JPMorgan Chase & Co. Chief Executive Jamie Dimon that eased some of the concerns about the financial system that have flared anew in recent days.
Despite Wall Street’s reaction, several energy analysts cautioned against getting too excited about crude’s downward trend. “I view this as a two-day or three-day price correction that will be followed by new highs by month’s end,” said James Ritterbusch, president of a Galena, Ill.-based oil trading advisory firm.
Stephen Schork, who writes a newsletter on energy markets, echoed that warning.
“We have seen this movie before . . . crude weakens a little and the bubble-bears jump in,” he said in a note to clients. “We are not going to take the bait.”
Consumers continue to see higher prices at the pump.
Nationwide, the average price for self-serve regular gasoline stayed flat Tuesday at a record-high $4.108 a gallon, as diesel rose less than a penny to an average price of $4.807 a gallon, also an all-time high, according to AAA’s daily price survey.
In California, the average cost of gas fell less than a penny to $4.559 a gallon Tuesday. The statewide average price of diesel was up a penny to $5.138 a gallon.
“Prices have been declining very slightly for two of the past four weeks in Southern California, and right now they seem to be in a holding pattern both locally and around the country,” said Jeffrey Spring, spokesman for the Automobile Club of Southern California.
Fallout from high fuel prices prompted the Energy Department to lower by a third its U.S. demand projection for 2008. The agency said in a report Tuesday that the high prices and a weak economy would cut the nation’s consumption for fuel and petroleum by about 400,000 barrels a day for the year.
Worldwide oil consumption would rise by almost 1.2 million barrels a day, the government said.
Texas oilman T. Boone Pickens, now an investor in wind and natural gas fuel for vehicles, on Tuesday unveiled a proposal to substantially cut the nation’s reliance on oil imports. Under what he called the Pickens Plan, the U.S. would spend $1.2 trillion to build massive wind-energy facilities that would supplant natural-gas-fueled power plants, freeing up that fuel for use in vehicles.
Pickens, who will fund an advertising campaign for the plan, released a television spot that he narrates. The high cost of oil is “killing our economy,” he said in the ad. “We don’t need any more talk. We need action and we need a plan.”
That message could get traction with politicians if, as some have predicted, oil prices head back toward $150 a barrel.
With this week’s downward trend in oil prices, the $150 benchmark “does not look like the proverbial done deal,” oil analyst Schork said. At least not yet.
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elizabeth.douglass@ latimes.com
