OIL futures dropped sharply yesterday as a dismal retail sales report confirmed a growing view among investors that the US economy is slowing and that demand for energy is likely to fall.
Investors who have already been selling heavily on concerns about a weak economy dumped contracts again after the Commerce Department said retail sales fell by 0.4 percent in December. Not only was the drop much worse than the 0.1 percent analysts expected, it also was evidence that not even the holiday shopping season could encourage wary consumers to spend freely.
Light, sweet crude for February delivery fell US$2.30 to settle at US$91.90 a barrel on the New York Mercantile Exchange.
President George W. Bush contributed to the concerns by warning that soaring oil prices could cause an economic slowdown in the United States.
"High energy prices can damage consuming economies," Bush said in Riyadh, Saudi Arabia, before meeting with that country's King Abdullah.
Bush made his comments as part of a plea to OPEC to boost production to bring oil prices down. The market shrugged off Saudi Oil Minister Ali Naimi's response that supplies are adequate.
"The overall tone of the market here is just reflecting a lot of the demand uncertainty out there," said Tim Evans, an analyst at Citigroup Inc.
Expectations that the Energy Department's weekly inventory report will show supplies of crude oil and refined products rose last week also weighed on futures prices.
High prices may also be cutting demand for crude oil. Today, the International Energy Agency will release its monthly oil market report, and Evans expects the IEA, an advisory group to mostly Western industrialized nations, to cut oil demand growth predictions.
Other energy futures also fell yesterday. February heating oil futures fell 4.2 cents to settle at US$2.5472 a gallon while February gasoline futures dropped 6.36 cents to settle at US$2.3092 a gallon. February natural gas futures fell 15.7 cents to settle at US$8.196 per 1,000 cubic feet.
In London, Brent crude futures fell US$1.94 to settle at US$90.98 a barrel on the ICE Futures exchange.
Traders will now look to Wednesday's weekly US oil inventory data for further indications of the health of oil markets. Analysts are expecting crude to draw down by 300,000 barrels, the ninth straight draw, according to the mean forecast in a Dow Jones Newswires survey of 14 analysts. Gasoline stockpiles are seen rising by 2.4 million barrels and distillates, which include heating oil and diesel fuel, are seen growing by 1 million barrels.
Refinery use is seen falling by 0.7 percentage point to 90.6 percent of capacity.