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By Jennifer Yousfi
Crude oil futures hit a 3-month low on expectations of a continued dip in demand and a stronger U.S. dollar.
Crude oil for September delivery yesterday (Tuesday) dropped $2.57, a decline of 2.1%, to settle at $122.16 a barrel on the New York Mercantile Exchange, Bloomberg News reported.
Earlier in the day, crude oil futures had traded as low as $120.75, its lowest intraday trading level since May 7 and an 18% drop from its July 11 intraday high of $147.27.
High gas prices at the pump do seem to be slackening consumer demand. Demand for oil and petroleum products declined 4.3% in May from the same period a year ago.
"This demand thing has some bite," James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois, told Bloomberg. "I can really see a crude market here that could drop down to $100 by the end of summer or early fall."
An Energy Department report slated for release today (Wednesday), is expected to show gasoline inventories rose 400,000 barrels last week, according to Bloomberg data. However, reports vary as MF Global Ltd. (MF) data predict a decline of 1.1 million.
The dollar gained 1.2% against the euro yesterday, climbing to $1.556 from $1.5741 on Monday. The greenback also gained against the yen, climbing 0.7% to 108.18 yen from 107.46 the day before. The stronger dollar put some downward pressure on dollar-denominated commodities prices as their appeal as an inflation hedge eased.
Comments from Organization of Petroleum Exporting Countries (OPEC) President Chakib Khelil predicting that crude oil prices could fall to $70 - $80 per barrel over the long-term added to the downward pressure. Khelil feels oil could fall if the greenback can continue to gain against other major currencies and certain political tensions, most notably in Iran and Nigeria, began to ease.
"The price today is abnormal at $123 a barrel," Khelil said yesterday, speaking to reporters on a visit to Jakarta to meet Indonesia's energy minister, Reuters reported.
When asked whether or not OPEC member nations were concerned about a drop in the price of oil, Khelil said, "We are not worried about any price, because we don't decide the price. We just meet the demand."
He stated that OPEC would not cut production in the face of lower crude oil prices, as the nations would continue to produce enough to meet global demand.
"Whether [crude oil] prices drop to $80 ... or not, there can only be the unavoidable conclusion that markets are finally working as they are supposed to, as higher prices inevitably act as a brake on demand," John Kilduff, an analyst at MF Global, said in a note to clients, MarketWatch reported.
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Crude futures fall near three-month low