FUTURES MOVERS Crude falls over $5 as commodities sell off Oil loses $9 in two days; EIA projects sharper drop in U.S. consumption By Moming Zhou & Polya Lesova, MarketWatch Last update: 3:33 p.m. EDT July 8, 2008 Comments: 370 SAN FRANCISCO (MarketWatch) -- Crude-oil futures tumbled more than $5 a barrel Tuesday, suffering the biggest one-day loss in almost four months and contributing to a two-day decline of more than $9 a barrel, as the rising dollar and economic worries spurred another broad sell-off in commodities. Crude oil for August delivery closed at $136.04 a barrel on the New York Mercantile Exchange, down 3.8%, or $5.33, the biggest daily loss in value since March 19. Earlier it slumped $6.23 to an intraday low of $135.14 a barrel. Crude has dropped $9.25 over two straight sessions. Crude's drop led a broad retreat in commodities. The Reuters/Jefferies CRB Index, a benchmark barometer gauging the prices of major commodities, fell 2.5%. Natural-gas futures declined nearly 5%, corn slumped by its extended daily limit of 45 cents a bushel, and gold and other metals futures also fell. See Metals Stocks. "We're starting to see some of the fluff come out of the market," said Phil Flynn, vice president at futures brokerage Alaron Trading in Chicago. Tuesday's slump in commodities came after the CRB Index jumped more than 25% in the first half of the year. Crude soared 46% in the same period. Crude's Tuesday closing price was the lowest since June 25. On Monday, crude had dropped nearly $4 to settle at $141.37 a barrel. Also on the energy markets, August reformulated gasoline fell 3.4% to $3.363 a gallon and August heating oil dropped 3.8% to $3.82 a gallon. August natural-gas futures fell 44 cents, or 4.7%, to $12.368 per million British thermal units. Rising dollar, weak demand A rising dollar and government projections that U.S. oil consumption will drop further were responsible for driving crude lower, analysts said. Video: A Sharp Fall in Oil Prices David Lundberg, director at Standard & Poor's, discusses the reasons behind Monday's sharp drop in crude prices and the outlook for oil companies like Exxon Mobil and Chevron. (July 7) "The market is facing up to the fact that we're almost halfway through the summer driving season and demand is shrinking," Flynn said. Also "the dollar is up and that's going to put some pressure on oil." The dollar firmed against major currencies Tuesday, boosted by comments from Federal Reserve Chairman Ben Bernanke, who said the Fed may extend its lending facilities into next year. See The Fed. The dollar index (DXY: US Dollar Index Future - Spot Price News, chart, profile, more Last: 72.97+0.29+0.40% 6:55pm 07/08/2008 Delayed quote data Add to portfolio Analyst Create alert Insider Discuss Financials Sponsored by: DXY 72.97, +0.29, +0.4%) , which measures the greenback against a trade-weighted basket of currencies, gained 0.3% to 72.92. A stronger dollar typically pressures prices of dollar-denominated commodities like oil. See Currencies. "The dollar is perhaps the key prop holding up energy prices, and should it stage a technical rebound, it could spark a rather substantial sell-off in a number of commodity complexes," wrote Edward Meir, an analyst at MF Global, in a research note. In a monthly report released on Tuesday, the Energy Information Administration projected that U.S. petroleum consumption will shrink by 400,000 barrels a day in 2008, nearly 40% more than EIA's June projection of a decline of 290,000 barrels. The change was "based on prospects for a weak economy and record high crude oil and product prices extending into 2009," the EIA said in the report. The EIA also said global oil consumption will grow by 900,000 barrels a day in 2008, as demand growth in developing countries will more than offset declines in the U.S. and other developed countries. The EIA projected that crude-oil prices will average $127 per barrel in 2008 and $133 per barrel in 2009. See full story. On Wednesday, the EIA will release last week's petroleum inventories data. Analysts surveyed by Platts, an energy information provider, expect crude stockpiles have fallen by 1.9 million barrels. They also expected refinery utilization be unchanged at 89.2%. Gasoline stocks are expected to rise 500,000 barrels, and distillates are expected to gain 2.2 million barrels. The EIA reported last Wednesday that U.S. crude supplies declined by 2 million barrels to 299.8 million for the week ended June 27. Iran, hurricane Geopolitical issues and hurricane forecasts were also on traders' radar. Iran, which holds the world's second-largest crude reserves, denied that it is looking to build a nuclear weapon, the BBC reported Tuesday. In June, the European Union imposed fresh sanctions on Iran, but it also offered incentives to convince Iran to halve uranium enrichment. A senior Iranian official said that his country will strike Israel and the U.S. Navy in the Gulf if it is attacked over its nuclear program, the BBC reported. But in an interview with CNN, Iran's foreign minister Manouchehr Mottaki said Sunday that talks with Western governments are in a "new environment" over Iran's nuclear program. Also, forecasters said Hurricane Bertha may weaken within the next couple of days as it continues to head toward Bermuda, the Associated Press reported. The hurricane "appears to pose no risk to Gulf of Mexico oil and gas platforms," wrote analysts at Action Economics. In other news, T. Boone Pickens laid out his "Pickens Plan" to reduce U.S. dependence on foreign oil, with the target of cutting demand by more than a third in the next two years. The colorful Texas billionaire, a former corporate raider and oil man turned hedge-fund manager, said wind power and natural gas could take up the slack as a viable alternative to spending $700 billion a year for foreign oil. Read full story. End of Story Moming Zhou is a MarketWatch reporter, based in San Francisco. Polya Lesova is a MarketWatch reporter based in New York.
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