NEW YORK (AP) —
Oil prices can't find a leg to stand on.
Many of the key factors that drove oil to three-year highs in May — fears of growing Middle East tensions, rising Chinese demand, bullish views from investment banks and expectations of an aggressive U.S. stimulus plan — have been diminished.
Meanwhile, a looming financial crisis in Europe has spooked energy markets as it raises the specter of another global recession. As a result, oil prices have
plunged. Benchmark crude has dropped 32 percent since peaking near $114 per barrel in late April. Oil slipped as low as $74.95 on Tuesday, the cheapest price since September of last year. It recovered somewhat, but remains below $76 per barrel.
If oil holds at that level, or falls further, gasoline will become cheaper. Analysts say the average price for gas could drop as low as $3.25 per gallon by the end of the year from the current $3.41 per gallon. That would save drivers roughly $5.1 billion over the next three months. The drop also means homeowners could see lower heating bills this winter.
This could give consumers more money to spend at retail outlets, restaurants and elsewhere. Lower oil prices should also lead to a decrease in fuel costs for shipping companies and airlines.
But there is a downside: the decline reflects an increasingly dim view of the world economy. Oil demand was expected to rise sharply this year as factories expanded production and consumers bought more cars. Economists still expect global demand for oil to grow but at a slower pace.
The Paris-based International Energy agency reduced its forecast for global demand this year by about 60,000 barrels a day to an average of 89.5 million barrels a day.
Goldman Sachs has routinely predicted a significant increase in oil prices. On Wednesday, the investment bank pulled back a bit, saying that financial stress in Europe will slow energy demand growth.
Goldman cut its 12-month expectation for benchmark crude by $10.50 to $116 per barrel and it cut its Brent crude forecast by $7.50 to $122.50 per barrel.
In a separate report that could have implications for the energy markets, the investment bank cut its expectations for economic growth in China as the U.S. and other countries order fewer Chinese-made products.
Wunderlich Securities also cut its forecast for oil, citing the "unrelenting stream of bad news dominated the headlines."
Bad news for the oil industry is usually good news for drivers. Gasoline prices dropped nearly a penny overnight to a new national average of $3.408 per gallon. Gasoline has fallen about 14 percent since peaking in May near $4 per gallon.
Gas is still 69 cents more per gallon than a year ago, which might puzzle motorists who hear oil is back where it was a year ago. Gasoline is influenced more by the price of oil from foreign countries that has held its value better than the U.S. benchmark.
In Tuesday trading, Brent crude lost $1.92 to finish at $99.79 per barrel in London. That's the first time Brent ended lower than $100 since February. But Brent, which is the benchmark for many international varieties of oil, is still up 5.3 percent for the year.
The benchmark U.S. crude dropped for a third day, giving up $1.94 to end the day at $75.67 a barrel in New York. It's down 17.2 percent so far this year.
Oil fell early in the day as Greece, the center of Europe's financial crisis, said it has enough money to pay its bills until November. Europe's leaders are still deciding whether to give it more emergency loans.
"If they don't work out a deal to handle Greece's credit problems, then confidence goes away in their ability to handle other eurozone countries with budget problems," PFG Best analyst Phil Flynn said.
MasterCard SpendingPulse also said that American drivers continue to cut back on gasoline purchases. Its survey of credit card spending showed that motorists bought less gasoline last week when compared with the same period last year.
In other energy commodities, heating oil gave up 2.95 cents to finish at $2.7234 per gallon and gasoline futures lost 2.26 cents to finish at $2.4884 per gallon. Natural gas rose 2.1 cents to end at $3.638 per 1,000 cubic feet.
Chris Kahn can be reached at http://twitter.com/ChrisKahnAP