Benchmark crude for September delivery fell US$1.26 to close at $105.30 per barrel on the New York Mercantile Exchange.
In the past two days, members of the Federal Reserve have said that the central bank may be close to reducing a bond-buying program that has kept long-term interest rates low and boosted investment in riskier assets like stocks and oil. Stock markets fell Tuesday, with the Dow Jones industrial average losing 93 points to 15,519. Lacklustre earnings reports from retailers also hurt stocks.
At the pump, the average price for a gallon of gas is $3.61, a penny than it was a year ago, AAA said. That last happened on June 1. AAA expects gas prices to stay flat or drop slightly, assuming no major hurricanes or refinery outages. Last August, gasoline prices rose 33 cents, partly because Hurricane Isaac disrupted refinery operations on the Gulf Coast.
Also Tuesday, the Environmental Protection Agency signalled that it could give refiners more leeway to meet ethanol mandates in the future. The amount of ethanol that refiners are required to blend into gasoline is expected sometime next year to exceed the amount of ethanol refiners can blend without access to special pumps to dispense the fuel.
Worries that the EPA would not offer that flexibility had pushed the price of renewable fuel credits higher, which ethanol critics say pushed pump prices higher. The price of those credits was down 12 per cent Tuesday to 92 cents per gallon in the wake of the EPA statement, according to Tom Kloza of GasBuddy.com.
Kloza says the EPA ruling has "calmed the markets down," but he doesn't think it will lead to sharply lower prices. "Anyone who says that (ethanol credits) add or subtract much to pump prices is pushing an agenda," he says. "It's just a couple of pennies, it's nothing."
Kloza says gasoline prices should drift lower in the coming months, barring a disruption such as a major storm, because oil and gasoline supplies are high and demand is weak. "Every day in August that doesn't see a tropical storm is bearish," he says. "It's good news for drivers."
Brent crude, traded on the ICE Futures exchange in London, fell 52 cents to $108.18 per barrel.
In other energy futures trading on the Nymex:
— Heating oil fell four cents to $3.01 a gallon.
— Natural gas was flat at $3.32 per 1,000 cubic feet.
— Wholesale gasoline fell four cents to $2.92 a gallon.
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