Oil falls on concern about German economy

AP News
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Posted: Aug 16, 2011 3:35 PM
Oil falls on concern about German economy

Oil fell Tuesday on renewed concerns about Europe's biggest economy.

Benchmark West Texas Intermediate crude for September delivery gave up $1.23 to finish at $86.65 per barrel on the New York Mercantile Exchange. Brent crude, which is used to price many international oil varieties, lost 71 cents to end at $109.13 per barrel on the ICE Futures exchange in London.

Oil dropped early in the day after Germany said its economy nearly ground to a halt in the second quarter, growing only 0.1 percent from April to June. The report fell well below expectations and showed that Germany was not immune to the financial troubles plaguing its neighbors.

A downshift in Germany's economy raises a number of concerns among investors. As Europe's largest economy, Germany is the strongest member of the European Union. If Germany struggles, it could impact the EU's ability to support weaker countries with financial aid. That means European credit troubles could spread elsewhere.

Europe consumes more than 17 percent of the world's oil, so a slowdown could mean weaker global oil demand.

"If Europe weakens further, we could be talking about a recession in the eurozone," independent analyst Jim Ritterbusch said. "That means a stronger dollar, and when that happens, it's usually bearish for oil."

Oil, which is priced in U.S. currency, tends to fall as the dollar rises and makes crude more expensive for investors using foreign money.

The report on the German economic overshadowed news of resurgent factory output in the U.S. The Federal Reserve said that U.S. industrial production grew in July at the fastest rate of the year.

Meanwhile, drivers continue to pump less gas than a year ago. A weekly survey by MasterCard SpendingPulse showed that drivers have cut back on gasoline purchases for 21 consecutive weeks. SpendingPulse, which collects credit card data from thousands of stations around the country, said that drivers bought an average 386 million gallons per day last week, down 3.4 percent from the same period last year.

"We haven't had much of a summer driving season," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. Kloza said last week's turmoil on Wall Street may have rattled leisure travelers and cut down unnecessary driving.

"People feel miserable when they hear about high unemployment," he said. "They feel miserable when the stock market crashes, and they feel really miserable when they see gasoline prices near a dollar more than last year."

On Monday gasoline pump prices were down nearly a penny, to a national average of $3.587 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is about 9 cents cheaper than it was a month ago, but it's still almost 84 cents more than the same time last year.

In other Nymex trading for September contracts, heating oil lost 1.15 cents to finish at $2.9326 per gallon and gasoline futures fell 2.07 cents to end the day at $2.8538 per gallon. Natural gas dropped 9.2 cents to $3.932 per 1,000 cubic feet.