NEW YORK, N.Y. – The price of oil continued its slide Thursday amid new reports that the U.S. economy isn’t growing as fast as many hoped.
Benchmark West Texas Intermediate crude lost US$1.29 to end at $86.53 a barrel in New York, while Brent crude, used to price varieties imported by U.S. refineries, fell $1.60 to finish at $101.87 a barrel in London. Oil is now the cheapest it’s been since October.
Earl Sweet, senior economist at BMO Capital Markets, said the drop in oil prices comes as concerns about unrest in the Middle East and North Africa ease and worries about the strength of the global economy rise.
A slowdown in Chinese manufacturing, weaker than expected growth in the U.S. and concerns about the European financial crisis have all contributed to the decline.
“All these things are beginning to trump geopolitics, so the risk premium has probably come off,” Sweet said.
On Thursday, the U.S. reported that the economy grew by 1.9 per cent in the first quarter, slower than at first estimated. And the number of Americans seeking unemployment benefits rose last week to a five-week high.
“Those are some poor headlines,” independent analyst and trader Stephen Schork said.
Oil already has fallen by nearly US$20 a barrel, or more than 17 per cent, this month, he said. “It’s hard to say how much lower oil can go.”
The U.S. government also reported Thursday that U.S. oil supplies grew more than expected last week. The country is now holding 384.7 million barrels in storage, the most since 1990. Oil supplies hit record levels in the Midwest even though a key pipeline project, partially owned by Calgary-based Enbridge Inc. (TSX:ENB), started transporting crude this month from Oklahoma to the Gulf Coast.
The Energy Information Administration report added that oil demand was flat last week in the U.S., and wholesale gasoline demand fell by 2.6 per cent when compared with the same period in 2011.
Sweet said lower oil prices will have consequences for governments in Canada.
“If oil prices stay at current prices or decline further it will impair the revenue flows going into resource rich provinces,” he said.
Besides the soft U.S. economy, oil prices fell during the month as tensions eased over Iran’s nuclear program, reducing chances for a conflict in the Persian Gulf that could crimp supplies. And China’s manufacturing sector slowed, while Europe’s banking crisis threatens to spread across the region.
The drop in oil has provided some welcome relief at the gas pump as the summer driving season gets underway. The national average for gasoline in the United States fell by less than a penny Thursday to US$3.62 a U.S. gallon (3.79 litres), according to AAA, Wright Express and Oil Price Information Service. Since April the average price for a gallon of regular has dropped by almost 32 cents US.
Experts say American gasoline prices could fall as low as US$3.50 a gallon on average by the U.S. Fourth of July holiday.
In Canada, online gas price monitor Gasbuddy.com said the current average price across the country for regular gasoline is about C$1.27 per litre — down three cents a litre from a month ago.
There was a wide range of local prices in different parts of the country Thursday, with Edmonton at the low end of the scale at $1.07 a litre and Vancouver at the high end with gasoline costing more than $1.46 a litre.
In other energy futures trading, natural gas rose less than a penny to end at US$2.422 per 1,000 cubic feet after the U.S. government reported that supplies in storage increased last week about as much as analysts expected.
Natural gas is still much cheaper than it was a year ago, with the average May price 42.4 per cent lower than the same time last year. Prices are down thanks to a jump in production and a relatively mild winter that reduced heating demand. Supplies are about 35 per cent above the five-year average for this time of year.
Heating oil fell by 3.36 cents to finish at US$2.7062 a U.S. gallon, and wholesale gasoline lost 3.32 cents to end at US$2.825 a gallon.
— With files from The Canadian Press
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