Commodity Daily News

Oil Drops Over Shrinking Demand

Crude Oil prices eased in US trading yesterday ahead of a weekly US report on energy stockpiles expected to reinforce worries over shrinking demand.
New York's main contract, light sweet crude for September delivery, was 42 cents lower at 121.77 dollars a barrel after slumping 2.54 dollars to 122.19 Tuesday on the New York Mercantile Exchange. The Oil dropped mainly because of a strengthening U.S. dollar and signs that gasoline demand may extend declines.

Oil market's bearish mood has also prompted some investors to move their funds out of oil. Prices have dropped about 17% since they touched record highs above 147 dollars a barrel on July 11th.

The US Department of Energy is expected to release today its weekly report on energy stockpiles in the country. The inventory data will probably continue to show a demand slowdown in the US and will likely add to the worries over a slackening oil demand.

In addition to a slowing demand, the supply is also growing. The EIA says Saudi Arabia, the world's largest producer and home to the world's biggest oil reserves, produced 10.6 million barrels per day in 2006, little changed from 1980 production of 10.3 million barrels. The kingdom recently announced its intention to increase production capacity to 12.5 million barrels per day by mid-2009. Its ability to do so will be watched closely by those experts who contend that Saudi oil fields either have reached or will reach peak production in this decade.