NEW YORK (CNNMoney.com) — Oil prices continued to slide Tuesday as investors focused on lower demand for fuel, less bellicose talk from the Middle East and some positive comments about the mortgage market.

The price of light sweet crude for August delivery tumbled $4.61 to $136.76 a barrel on the New York Mercantile Exchange. It was the lowest level in nearly two weeks, and followed a drop of $3.92 Monday.

A government report scheduled for release Wednesday may indicate lower demand for fuel over the Fourth of July weekend, acccording to Neal Dingman, senior energy analyst with Dahlman Rose & Co.

The government’s petroleum inventory report was expected to show an increase in gasoline stocks, which are normally flat or lower over the holiday.

“People are still very much concerned about demand destruction,” said Dingman.

While oil use in emerging economies such as China and India continue to increase rapidly, the U.S. still uses nearly three times as much oil as China, the second largest crude consumer, according to the CIA’s world fact book. A dip in U.S. demand can have an amplified effect on the oil market.

“The U.S. sneezes, everybody catches a cold,” said Dingman.

Expensive fuel. Fuel prices above $4 a gallon continued to weigh on U.S. consumers and businesses.

A daily survey from motorist advocacy group AAA showed the price of gasoline at the pump remained at the record high price of $4.108 a gallon, first reached Monday. The price of diesel, which fuels most trucks and commercial vehicles hit a new high of $4.807 a gallon.

Iran. Concerns over supply disruptions in the oil-rich Middle East also lessened after Iranian president Mahmoud Ahmadinejad said he did not believe there would be an armed conflict between Iran and Israel or the United States.

At a summit of Muslim nations in Malaysia on Tuesday, Ahmadinejad said he believed the U.S. and Israel have been using propaganda and psychology against Iran, but that he did not see war in the future, the Associated Press reported.

Mortgage market. Positive statements about government-backed mortgage lenders Fannie Mae and Freddie Mac helped bolster confidence in the U.S. economic outlook, and led many investors to transfer their funds out of oil, one trader said.

Both lending agencies have adequate capital, said James Lockhart, director of the Office of Federal Housing Enterprise Oversight, the government agency that oversees the two businesses, according to news reports.

“People have been using oil as a hedge against systemic risk in the economy,” said Phil Flynn, senior market analyst with Alaron Trading in Chicago.

With a stronger mortgage market on the horizon, “they can come out of their safety place a little bit,” said Flynn.

Dollar. Oil was also being pulled down by the climbing dollar as the U.S. currency inched upward versus the euro and yen Tuesday.

Oil is traded in dollars, so when the dollar rises it becomes a more attractive investment.

Hurricane miss. Investors also breathed a sigh of relief after computer models predicted the newly formed Hurricane Bertha would not reach the Gulf of Mexico, where a lot of the U.S. oil production and refining infrastructure is located.

G-8. Internationally, leaders of the top eight economic powers, known as the G-8 nations, expressed concern over the high price of oil and other commodities at a 3-day summit in Japan, and called for increased production.

The G-8 – which consists of France, Germany, the U.K., the U.S., Russia, Italy, Canada and Japan – said it was important to “improve energy efficiency as well as pursue energy diversification.”

Other energy prices. Also on the NYMEX, heating oil fell more than 12 cents to $3.8475 a gallon and gasoline futures tumbled 11.5 cents to $3.3675 a gallon. Natural gas also pulled back. To top of page

 

http://money.cnn.com/2008/07/08/markets/oil/?postversion=2008070809

 

Comments are closed.

Looking for something?

Use the form below to search the site:


Still not finding what you're looking for? Drop a comment on a post or contact us so we can take care of it!