Crude futures fall near a three-month low

By Daniel | July 29, 2008

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Crude futures fall near three-month low

By Polya Lesova & Myra P. Saefong, MarketWatch

Last Update: 7/29/2008 12:15:00 PM

SAN FRANCISCO (MarketWatch) — Crude-oil futures dropped as much as $4 a barrel
Tuesday, reflecting ongoing concerns over easing demand as well as strength in
the dollar, to push prices to their lowest level in nearly three months.

Energy futures traded broadly lower.

Crude for September delivery dropped $3.43 to $121.30 a barrel on the New York
Mercantile Exchange. Earlier, the contract touched a low of $120.75, its weakest
intraday level since May 7.

“Nothing goes up in a straight line, and crude’s run has been phenomenal,” said
Sean Brodrick, a natural resources analyst for MoneyandMarkets.com. Crude was
trading at just $78 a barrel a year ago.

“A short-term pullback is a normal and necessary part of any bull market, and
crude is no different,” he said in emailed comments.

On the currency market, the dollar index (DXY) was recently at 73.24, up from
72.694 in late North American trading Monday, providing an excuse for oil prices
to move lower. Dollar strength typically weighs on dollar-denominated commodities
such as oil and gold.

The dollar shrugged off downbeat housing data reported earlier Tuesday and took
comfort from a recovery in stock prices. See Currencies.
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In other news, OPEC President Chakib Khelil called oil prices “abnormal” and said
they could pull back to $80 a barrel in the long term if the dollar were to
continue to recover and global political worries eased, Reuters reported Tuesday.

“Whether 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,” said John Kilduff, an analyst at MF
Global, in a note to clients.

Khelil, who is Algeria’s oil minister, also said that OPEC should not consider
cutting production after the steep decline in prices over the last two weeks
since markets are now balanced, according to Reuters.

“Crude futures had an impressive rally recently, hitting all-time highs earlier
this year,” said Andrey Kryuchenkov, analyst with Sucden Research.

“The market was in need of a correction, which could continue if we see more
signs of slowing demand and sluggish economic growth in states,” he said. The
Organization for Economic Cooperation and Development is a 30-nation group that
includes mostly developed countries from North America, Europe and Asia.

In the long run, the oil market still looks fundamentally strong, Kryuchenkov
said.

Also on the energy markets, September reformulated gasoline fell 6.7 cents to
$3.008 a gallon and September heating oil dropped 8.1 cents to $3.506 a gallon.

Natural gas for August delivery fell 16.3 cents to stand at $9 per million
British thermal units.

The contract will expire at the close of Tuesday’s session, after which September
will become the front month. That contract was last down 8.5 cents at $9.11 per
million British thermal units.

Shell declares force majeure in Nigeria

Also Tuesday, Royal Dutch Shell (RDSA)(UK:RDSA) said that it won’t be able to
meet a significant part of its Nigerian oil-export obligations for the next two
months after a pair of militant attacks left two oil pipelines damaged, Dow Jones
Newswires reported.

A Shell spokesman said the oil giant declared force majeure with customers after
assessing the damage to its Nembe Creek and Rumuekpe pipelines, according to Dow
Jones.

Shell didn’t specify how much crude would be affected, the report said.

On Monday, oil futures closed up $1.47 at $124.73 a barrel on the New York
Mercantile Exchange, getting a lift from the supply disruption in Nigeria.

Elsewhere in commodities trading Tuesday, prices for gold futures dropped more
than 1%

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