Fundamentals trip up weeklong energy rally
SIOUX FALLS, S.D. — A weeklong rally in energy prices appeared to stumble Wednesday, with more evidence of anemic demand.
Oil prices fell toward $67 after the government reported that the level of unused crude in storage rose sharply. That could suggest that a price rally that began in May was premature.
Benchmark crude for July delivery dropped $1.31 to $67.24 a barrel on the New York Mercantile Exchange. The contract on Tuesday slipped 3 cents to settle at $68.55.
It is typical for energy prices to rise around this time of year, but there have been questions about whether market fundamentals support the pace of soaring costs this time around.
Crude inventories rose by 2.9 million barrel, which is 20.3 percent above year-ago levels, the Energy Department’s Energy Information Administration said in its weekly report Wednesday. Analysts had expected a fourth straight week of decline.
The report Wednesday suggests that despite recent upticks in manufacturing in Europe, the United States and China, there may be some distance still to go before demand for energy returns in force.
Oil prices have doubled since March with some signs that the worst of the recession may be over. Adding to that upward trend is the arrival of more money from Wall Street, which has entered crude markets because of the weakening dollar.
There are concerns that the massive U.S. stimulus package will spark inflation and undermine the dollar, which hit a new low for the year against the euro Tuesday. Investors typically invest in commodities to protect themselves against the risks of inflation caused by a weaker dollar.
In other Nymex trading, gasoline for June delivery slipped by nearly a cent to $1.9157 a gallon and heating oil fell by 3.5 cents to $1.763 a gallon. Natural gas for June delivery fell 23.5 cents to $3.885 per 1,000 cubic feet.
In London, Brent prices lost $1.21 to $66.96 a barrel on the ICE Futures exchange.
Associated Press Writers Alex Kennedy in Singapore and George Jahn in Vienna contributed to this report.
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