Oil falls below $71 amid weak demand

September 21, 2009 7:40:07 AM PDT
Oil prices slipped below $71 a barrel Monday as high crude stockpiles and weak demand tempered enthusiasm about recent signs of improvement in the world's largest economy.

Benchmark crude for October delivery was down $1.25 at $70.79 a barrel by noon European electronic trading on the New York Mercantile Exchange. The contract gave up 43 cents Friday to settle at $72.04 a barrel.

The recession has sapped American fuel consumption, and U.S. oil stockpiles are 14 percent larger than last year even as recent data suggests the economy is clawing out of recession.

The Energy Information Administration said Wednesday that the country also is sitting on a sea of distillate fuels including heating oil, with stockpiles approaching a 27-year high.

"Most of the macro data from the U.S. over the last month has been supportive of oil prices," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "But inventories remain high and demand is weak, so that's capping prices."

Moore said crude will likely average $64 a barrel in the fourth quarter before rising to average $80 in the October to December period of 2010.

In Vienna, JBC Energy attributed part of the decline to "reports that Chinese diesel demand may not be recovering as fast as expected." Expectations of strong Chinese demand in a recovering world economy have been a main driver of prices.

In other Nymex trading, gasoline for October delivery slipped by nearly 3 cents to $1.80 a gallon, and heating oil fell by more than 3 cents to $1.80 a gallon. Natural gas dropped nearly 6 cents to $3.72 per 1,000 cubic feet.

In London, Brent crude fell $1.40 to $69.79 on the ICE Futures exchange.

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