Oil prices dipped to US$118 a barrel yesterday, their lowest level since May 5, on concerns that the US economic downturn would further erode demand in the world's biggest energy market. In electronic trading on the New York Mercantile Exchange, light sweet crude for September delivery lost about $3.40 a barrel before rebounding to about $120 a barrel. The latest dip in oil prices followed Monday's release of economic data showing US consumer spending, adjusted for inflation, fell 0.2 per cent in June. It was the biggest drop since February, suggesting that shoppers were failing to spend tax rebate cheques issued as part of a government stimulus package.
Another factor weighing on oil prices was a receding threat of storm damage to offshore oil and gas drilling platforms in the Gulf of Mexico as weather forecasters judged that tropical storm Edouard was unlikely to produce sufficiently strong winds. A strengthening dollar was yet another factor reducing investors's attraction to oil and other dollar-denominated commodities. Markets yesterday shrugged off continuing political tension over Iran's nuclear ambitions following Tehran's latest failure to respond to an offer from western governments of economic incentives in exchange for suspending the country's uranium enrichment programme. The UN Security Council and Germany agreed on Monday to seek new sanctions against Iran.
Analysts said the failure of such bullish developments to lift crude prices suggests further downside risk. Crude futures have fallen about 18 per cent, or $27 a barrel, since peaking on July 11 at a record $147.27 a barrel. @Email:tcarlisle@thenational.ae