Oil Falls to Near $94 as U.S. Economy Weakens
Oil prices fell to near $94 a barrel Tuesday in Europe as worries over the state of the U.S. economy overshadowed a deal to raise the U.S. debt ceiling, a move that avoids the risk of a debt default.
By early afternoon in Europe, benchmark oil for September delivery was down 80 cents at $94.09 a barrel in electronic trading on the New York Mercantile Exchange. Crude fell 81 cents to settle at $94.89 on Monday.
In London, Brent crude was down 45 cents at $116.36 a barrel on the ICE Futures exchange.
"The threat of U.S. insolvency would appear to have been averted, but the worry now is the country's economy," said analysts at Commerzbank in Frankfurt.
A jump in the oil price Monday — sparked by an agreement to raise the U.S. debt limit and cut spending — fizzled as traders focused in on a particularly weak manufacturing survey. The Institute for Supply Management said manufacturing activity in the U.S. barely grew in July, stoking fears that the world's largest economy may be heading back to recession.
"The soft patch is getting patchier still," HSBC economist Frederic Neumann said. "The message from the U.S. and Europe is that the industrial sector has decelerated further."
The U.S. economy is already growing fairly slowly. Figures last week showed that it grew at an annualized 1.3 percent in the second quarter. First quarter growth was also revised down to 0.4 percent from 1.9 percent.
"After seeing the horrible GDP number and revision last week, there are a lot more concerns about where this economy is headed," energy analyst and trader Blue Ocean Brokerage said in a report.
Markets are also on the watch for the latest reports on U.S. stockpiles of crude and refined products.
Data for the week ending Oct. 1 is expected to show builds of 2 million barrels in crude oil stocks and a rise of 350,000 barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
"Traders will try to find solace in this week's DOE statistics, but they might not find any," U.S. energy consultant Cameron Hanover said in a report. "The picture is starting to become more bearish, with the economy looking quite weak."
In other Nymex trading, heating oil fell 1.48 cents to $3.0826 a gallon while gasoline dropped 1.6 cents to $3.0380 a gallon. Natural gas futures gained 1.3 cents at $4.201 per 1,000 cubic feet.