Oil falls on soft U.S. fuel demand, shrugs Gustav
Reuters* Oil falls as U.S. data shows soft demand
* U.S. refineries, oil production still hobbled by Gustav (Recasts, updates prices, market activity to settlements, newbyline, dateline, previously LONDON)
By Richard Valdmanis
NEW YORK (Reuters) - Oil fell by more than $1Thursday as concerns over weak demand in a softening U.S.economy outweighed an unexpected drop in U.S. crude oilinventories and continued production problems in the wake ofHurricane Gustav.
U.S. crude fell $1.46 to $107.89 a barrel, extendinga slide from the all-time peak in mid-July of over $147. LondonBrent crude fell $1.76 to $106.30.
"I've got to believe that the market, in its wisdom, islooking at other factors and is preoccupied with the state ofthe economy, declining demand and a strengthening dollar," saidPeter Beutel, president of Cameron Hanover, New Canaan,Connecticut.
U.S. government inventory data showed total demand for oilproducts, such as gasoline and distillates, over the past fourweeks fell 3.5 percent from a year ago, continuing a trend ofweak consumption in the midst of an economic downturn.
The U.S. dollar's further rebound encouraged oil's lossesby weakening the spending power of buyers using othercurrencies, dealers said.
The oil market shrugged off a government report showingcrude U.S. oil inventories fell 1.9 million barrels last week,compared with a forecast of a 200,000 barrel increase.
Those inventories are likely to keep sliding in comingweeks as the U.S. energy sector makes slow progress in itsrecovery from Hurricane Gustav, with some 25 percent of U.S.crude oil production still shut in the storm's wake.
Production shutdowns in the Gulf of Mexico already have cut7.4 million barrels of cumulative output, about a third of theamount of oil the United States consumes in a day, according togovernment data.
But dealers said demand is also likely to slow sharply,with some 11 percent of the nation's refining capacity shutdown by Gustav. Refiners use crude oil to make fuels likegasoline and diesel.
Hurricane Ike, meanwhile, strengthened into an extremelydangerous Category 4 hurricane in the open Atlantic, althoughit posed no immediate threat to land.
Traders are awaiting OPEC's Sept. 9 meeting. Analyst PFCsaid a consensus was building within OPEC to cut output tosupport prices and prevent a supply overhang from developing.
Iran has said the producer group may need to cut oilsupplies by as much as 1.5 million barrels per day (bpd),nearly 5 percent, to balance global markets by early nextyear. (Additional reporting by Ikuko Kao, Matthew Robinson and JoeBrock in London and Chua Baizhen in Singapore; Editing by DavidGregorio)