Oil slides 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 $1.17 to close at $95.30 in New York. Brent crude, which is used by many U.S. refineries to make gasoline, fell $1.60 to $114.18 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. The Bureau of Safety and Environmental Enforcement said Tuesday only 3.5 percent of the Gulf of Mexico oil platforms remain evacuated. Production ramped up by about 100,000 barrels per day between Tuesday and Wednesday and is now 710,000 barrels per day below normal. At the height of the storm, 1.3 million barrels per day of production was halted.
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.
"There are a lot of crosscurrents," said Andrew Lebow, an analyst at Jefferies Bache.
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.
Phil Flynn of Price Futures Group suggested hopes for stimulus could already be priced into the oil market, however.
"Last week we were intoxicated by stimulus," he said. "The market now may want to see more than talk. It may want to see some action."
Gasoline prices also fell — slightly. The national average retail price of gasoline slipped less than a penny to $3.82 per gallon.
Bigger declines could be on the way, though. 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.
Phillips 66 said Tuesday that power had been restored to its 247,000-barrel per day refinery in Belle Chasse, La. that had been shut down in anticipation of the storm and then flooded by Isaac's heavy rains. The company said it will be "a couple of weeks" before the refinery is running at normal rates. But now all of the refineries that were shut or slowed are in the process of ramping back up, according to the Energy Department.
Gas could stay relatively high, though, if economic stimulus measures keep the price of crude elevated. Retail gasoline prices are higher than ever for this time of year.
In other futures trading in New York:
— Natural gas rose 5 cents, or 1.8 percent, to close at $2.85 per thousand cubic feet.
— Wholesale gasoline fell 2 cents to close at $2.95 per gallon.
— Heating oil fell 3 cents to close at $3.15 per gallon.