Oil prices slide on economic concerns

AP News
Posted: Sep 04, 2012 11:08 AM
Oil prices slide on economic concerns

NEW YORK (AP) — The price of oil slipped Tuesday after a weak report on U.S. manufacturing suggested demand for oil would fall.

U.S. benchmark crude fell $1.06 to $95.41 in morning trading in New York. Brent crude, which is used by many U.S. refineries to make gasoline, fell 94 cents to $114.84 in London.

The Institute for Supply Management said Tuesday its index of U.S. factory activity fell for the third straight month, suggesting more weakness in the U.S. economy.

When economic growth slows, drivers, shippers and travelers use less gasoline, diesel and jet fuel.

Meanwhile, oil production in the Gulf of Mexico is ramping up after Hurricane Isaac, erasing fears that the storm would impact supplies for an extended period and send prices up.

Oil might have fallen further Tuesday, analysts said, but traders are expecting stimulus programs will soon be announced in Europe, the U.S. and China that could free up cash for oil purchases and boost economic growth worldwide.

The European Central Bank President Mario Draghi is expected to reveal a program Thursday aimed at easing borrowing costs. Last week Federal Reserve Chairman Ben Bernanke suggested the Fed could do the same. A weak manufacturing report in China raised speculation that the Chinese government would also announce stimulus measures.

These programs reduce interest rates and free up cash for investors. They are then likely to use some of that money to invest in oil and other commodities, pushing prices higher.

"There are a lot of crosscurrents," said Andrew Lebow, an analyst at Jefferies Bache.

Gasoline prices also fell — slightly. The national average retail price of gasoline slipped less than a penny to $3.82 per gallon.

Several refineries along the Gulf Coast are ramping back up after shutting or slowing production in advance of Hurricane Isaac. A flooded Phillips 66 refinery in Belle Chasse, La. was still without power Monday, but the company said crews had cleared out floodwaters and were preparing the refinery to re-start when power was available.

Analysts expect gasoline prices to fall in the coming weeks as the refineries return to full strength, the summer driving season ends, and refiners switch to cheaper winter gasoline blends.

Prices could stay relatively high, though, if economic stimulus measures keep the price of oil elevated. Retail gasoline prices are higher than ever for this time of year.

In other futures trading in New York:

— Natural gas rose 7 cents, or 2.6 percent, to $2.87 per thousand cubic feet.

— Wholesale gasoline rose 2 cents to $2.99 per gallon.

— Heating oil was unchanged at $3.18 per gallon.