Weak U.S. economic reports Friday followed on the heels of reduced forecasts for oil demand. Oil dropped two per cent.
U.S. crude futures fell $2.22, or 2.4 per cent, to $91.29 barrel in New York. Brent crude, which is used to price oil used by many U.S. refiners to make gasoline, fell $1.34 to $103.04, the lowest level since mid-July, in London.
Supplies of both oil and gasoline are plentiful, and demand appears to be weak.
"It's the usual culprits," said Judith Dwarkin, Chief Economist at ITG Investment Research. "Supply growth is outpacing demand growth."
The falling crude prices will help extend a long, slow slide in retail gasoline prices, forecasters say. The average price of a gallon of gasoline in the U.S. fell a penny overnight to $3.56 per gallon (3.8 litres). That's 23 cents lower than the high for the year, set on Feb. 27. And gas is now 36 cents a gallon cheaper than a year ago at this time.
In each of the last two years the global oil market faced falling supplies because of production disruptions in the North Sea, East Africa, and Iran, which was facing tighter sanctions. This year, production has proceeded mostly as expected. U.S. output is booming, but Saudi Arabia and other OPEC nations have cut back somewhat in response.
In the U.S., refining capacity is at an all-time high and refiners have gotten a head start on making gasoline for the summer driving season. With supplies above normal for this time of year, refineries might pull back on oil purchases in the coming months. That will slow the drawing down of oil supplies, and keep prices lower.
At the same time, the global economy still shows signs of weakness, suggesting that oil consumption will grow less than expected. When economic growth slows, drivers, shippers and travellers use less gasoline, diesel and jet fuel.
The U.S. Commerce Department said Friday that sales at U.S. retailers fell 0.4 per cent last month, indicating that higher taxes and weak hiring likely made some consumers more cautious about spending. The Commerce Department also reported that companies restocked their shelves at a much slower pace in February than in the month before, a sign that companies expect consumers and businesses to pull back on spending.
OPEC, the U.S. Energy Department and the International Energy Agency, which represents a group of oil-consuming nations, all lowered their outlook for global oil demand this week. The IEA on Thursday dropped its forecast for demand this year by 45,000 barrels to 90.6 million barrels a day.
In other energy futures trading on the New York Mercantile Exchange:
— Gasoline fell three cents to $2.80 per gallon.
— Natural gas rose eight cents to $4.22 per 1,000 cubic feet.
— Heating oil fell three cents to $2.87 per gallon.
Follow Jonathan Fahey on Twitter at http://twitter.com/JonathanFahey .
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