Oil drops below $86 a barrel, cooling 2-week rally
Posted: 11:40 am Fri, November 12, 2010
NEW YORK — A two-week rally in oil prices was put on hold Friday on concerns that China would take steps to cool off its economy.
China, the largest energy consumer in the world, is expected to increase oil consumption by 400,000 barrels per day in 2011 and drive world oil demand for years to come. But analysts say that appetite for crude could be reduced if Beijing moves to control economic growth after inflation hit a 25-month high in October.
Benchmark oil for December delivery dropped $2.28, or 2.6 percent, to $85.53 a barrel on the New York Mercantile Exchange.
“You’ve seen a push all week to get this market moving higher, but we’re kind of stalling right now,” oil trader and analyst Stephen Schork said.
Schork said oil will continue to be heavily influenced by the U.S. dollar. Oil is priced in dollars, and it tends to move opposite the dollar in commodities markets. When the dollar falls, for example, investors look to park their money in safer investments like energy commodities, and this pushes the price of oil higher.
That’s been the case as the Federal Reserve takes steps to stimulate the U.S. economy. The Fed is pumping $600 billion into a bond-buying program, effectively reducing already low interest rates. Oil prices jumped more than $14 per barrel, nearly 20 percent, since September, when the Fed first indicated that it would make such a move.
As oil prices increased, they pushed retail gasoline prices higher as well. Many East Coast cities are now seeing pump prices above $3 per gallon.
The national average for regular unleaded gas increased more than a penny overnight to $2.876 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 5.6 cents more expensive than it was last month and 22.6 cents higher than it was last year.
Gasoline is now at or above $3 a gallon in Alaska, Hawaii, California, Connecticut, Illinois, Michigan, New York and Washington.
In other Nymex trading in December contracts, heating oil fell 4.17 cents to $2.3849 a gallon and gasoline futures fell less than a penny at $2.2258 a gallon. Natural gas dropped 2.5 cents to $3.902 per 1,000 cubic feet.
In London, Brent crude slid $1.68 to $87.13 a barrel on the ICE Futures exchange.
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