Oil Falls to $118 as Storm Danger Abates, Demand Concern Grows

By Grant Smith

August 5, Bloomberg

Crude oil fell to $118 a barrel on speculation Tropical Storm Edouard will leave U.S. oil rigs and refineries undamaged and as commodities prices tumble because of the slowing U.S. economy.

Oil dropped to its lowest level since May 5 as Edouard's wind speeds remained below hurricane strength. Gold, platinum and wheat dropped on speculation slower growth will curb demand and as a stronger dollar dulled the appeal of commodities as an inflation hedge.

``As the storm no longer appears an immediate threat, the dominant theme is still weaker demand,'' said Andrey Kryuchenkov, an analyst at London-based Sucden (U.K.) Ltd. ``Dropping below support levels around $120, where buying had first kicked in April, has probably triggered a lot of sell- orders.''

Crude oil for September delivery fell as much as $3.41, or 2.8 percent, to $118 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $119.34 at 1:32 p.m. London time.

Oil has lost almost $30 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted U.S. consumers to limit spending on fuel. Yesterday, the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 3.25 percent, its biggest loss since March.

``Very little oil production seems to have been shut in by Edouard,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``Gasoline stocks are high enough to limit any crisis from refinery shutdowns, so the market's returning its attention to the weak demand picture.''

Read more this news quote

photo: Traders work in the crude oil options pit at the New York Mercantile Exchange, July 30, 2008. Photographer: Andrew Harrer/Bloomberg News