labels: Economy - general
Oil drops below $122 news
05 June 2008

Mumbai: Oil prices fell below $122 as India and Malaysia's raised raise fuel costs, and weaker US consumption data heightened concerns about falling demand for oil.

A weekly inventory report by the US government revealed that supplies of gasoline increased significantly more than expected last week, driving the price of oil below $122. On the New York Mercantile Exchange, US light crude for July delivery fell $2.01, and briefly fell to a low of $121.84 before settling at $122.30 a barrel, which was its lowest closing prices since 6 May.

The report by the US Energy Information Administration said crude supplies fell by 4.8 million barrels last week, indicative of potentially higher oil prices, but sources said the price of oil fell because of the increase in gas supplies which increased by 2.9 million barrels, way ahead of the anticipated 900,000 barrels. Supplies of distillates, which are used to make heating oil and diesel, increased by 2.3 million barrels.

Retail gas prices, however, continued to maintain their record highs during the summer driving season in the US. According to the website of the American Automobile Association (AAA), the national average price for a gallon of regular unleaded gasoline went up to a record high of $3.983, its 27th record high in 28 days.

AAA's website said that the average price for gas has surpassed the $4 a gallon mark in 13 states, and in Washington, DC.

Analysts say that even if crude oil prices drop, it would be some time before that reduction in price is reflected by prices at the pump.

Refineries across the US have increased production, while consumers have also modified their driving habits with a view to cut back on gas consumption, which will have an effect on the pump price of gasoline in the near term, according to analysts.

The US Energy Information Administration's report shows refineries operated at 89.7 per cent of capacity last week, higher than the previous week's 87.9 per cent, and significantly above the 88.5 per cent level that analysts have been expecting. The capacity is just below the usual 90 per cent rate for this time of year.

Gas prices at $4 levels has made car maker General Motors announce that it would be closing four plants that manufacture ''gas-guzzling'' trucks and SUVs, and revise production plans for its more fuel efficient cars.

The government report says that over the past four weeks motor gasoline demand has averaged 9.3 million barrels per day, down by 1.4 per cent as compared to the corresponding period last year.

Analysts say that rapid demand growth in emerging countries such as China, India and Malaysia was largely responsible for the price of crude oil jumping to the all-time high of $135.

They point out that as these countries raise their government fuel subsidies, thereby making fuel more expensive to consumers, demand will drop. India lifted its subsidy in part yesterday, and Malaysia too has announced that it will raise gasoline prices. India raised retail petrol and diesel fuel prices by around 10 per cent, while Malaysia intends to hike petrol prices by 41 per cent.

Taiwan, Sri Lanka and Indonesia had undertaken similar exercises last month.


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Oil drops below $122