The price of oil fell to its lowest level in two months on Wednesday as evidence builds that the high cost of gasoline and other fuels is sapping demand. New data from the Energy Department show that fuel consumption over the past month declined by almost 3 percent compared with last year. Analysts attributed the trend to soaring pump prices and a slowdown in economic activity, particularly among Gulf Coast states that were affected by Hurricanes Katrina and Rita.
"Maybe there is some elasticity to petroleum demand after all," said analyst Andrew Lebow of Man Financial Inc. in New York. The decline in oil prices coincided with an even more pronounced selloff of gasoline futures, which Lebow attributed in part to momentum trading.
It is too soon to tell whether the dropoff in demand will hold or was a short-term phenomenon, analysts said. But it definitely has the market's attention for the moment, overshadowing government data that show crude oil and gasoline supplies are shrinking.
Light sweet crude for November delivery fell $1.11 to settle at $62.79 per barrel on the New York Mercantile Exchange, its lowest level since the Aug. 5 close of $62.31. Oil is now 10 percent below the Sept. 1 record close of $69.47.
Heating oil futures declined by more than 3 cents to $2.0148 per gallon, while unleaded gasoline futures fell almost 11 cents to $1.9078 per gallon. Gasoline futures are now 19 percent below the Sept. 28 peak of $2.34 a gallon.
Gasoline demand over the past month was 2.6 percent below year ago levels, the Energy Department said Wednesday in its weekly petroleum supply report. Demand for jet fuel and diesel were also lower over the same period.
Societe Generale said in a research note Wednesday that the decline in demand over the past month was twice as large as the usual end-of- summer dropoff and it expects to the trend to continue, even if prices fall.
Retail gasoline prices nationwide average $2.93 a gallon, or almost $1 above year ago levels. With 12 refineries in Louisiana, Mississippi and Texas still out of service, analysts say supplies could remain tight for weeks and even months. A cold winter would put additional strain on the supply of heating oil.
It isn't just crude derivatives that are expensive.
Natural gas futures closed at a record high of $14.224 per 1,000 cubic feet on Tuesday; they fell 4.1 cents on Wednesday to $14.183, but that is still roughly double year-ago prices.
The Interior Department said Tuesday that heavy damage by Hurricanes Katrina and Rita would mean a slow recovery for offshore natural gas production. The Gulf Coast produces about one-fifth of the natural gas used by U.S. industry and to heat homes. The loss of natural gas output is particularly troublesome, analysts say, because there is no emergency stockpile.
"The outlook for winter is grim and the threat to the U.S. economy is real," Energyintel analyst Tom Wallin said in a research note.
On the petroleum supply front, the Energy Department said Wednesday that commercial inventories of crude oil fell by 300,000 barrels last week to 305.4 million barrels, or 12 percent above year ago levels. The agency said gasoline inventories shrank by 4.3 million barrels to 195.5 million barrels, or 4.5 percent below last year's level.
The supply of distillate, which includes heating oil and diesel, fell by 5.6 million barrels to 128 million barrels. Distillate inventories are 4 percent higher than a year ago.
The Minerals Management Service said Wednesday that, in the aftermath of Katrina and Rita, 86 percent of Gulf of Mexico oil production remains offline and 69 percent of natural gas output is down.
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Associated Press Writers George Jahn in Vienna, Austria and Gillian Wong contributed to this report from Singapore.
