Updated from 11:08 a.m. EDT
Oil futures fell back below $59 Tuesday ahead of a government report expected to show an increase in crude stockpiles and reports warning of an economic slowdown.
Wholesale prices tumbled 1.3% --- the largest drop in nearly two years --- and industrial production plunged 0.6% last month, according to government reports released Tuesday. The figures gave rise to concerns the economy is slowing down, a move that would likely drive down demand and prices for crude.
Light, sweet crude for November delivery dropped $1.01, or 1.7%, to settle at $58.93 a barrel. Gasoline shed 2 cents to $1.47 a gallon.
The front-month contract has shed as much as 25% since July on brimming supplies, sluggish economic growth, improving relations with Iran, one of the world's biggest producers, over its nuclear program and OPEC's apparent decision to reduce production.
The Organization of the Petroleum Exporting Countries is slated to meet this Thursday in Qatar to hammer out a production cut. OPEC members have agreed to a daily reduction of 1 million barrels, but have not decided whether to shave production from its official quota of 28 million barrels per day or its actual output of 27.5 million barrels.
The group, which controls 40% of the world's crude, has not trimmed output since December 2004. At that time, it reduced production by 1 million barrels and boosted crude prices. The group has been eyeing a production cut since oil prices dipped below $60.
Traders also were looking ahead to the U.S. Energy Department's weekly petroleum update due out Wednesday morning. Crude inventories were expected to rise by 1.5 million barrels last week, for the third straight weekly increase, according to a
poll of analysts. Refiners have been shuttering some units for seasonal maintenance and processing less crude into gasoline and distillates.
Refining capacity is expected to drop by 0.4% to 88.8% last week. Gasoline stockpiles likely dipped by 200,000 barrels and distillates, which include heating oil and jet fuel, probably fell by 800,000 barrels last week.
Brimming fuel inventories and OPEC's indecision over its production reduction have limited the run-up in crude prices over the past few weeks. Supplies of oil, gasoline and distillates are 7% to 18% above the same period last year thanks to little hurricane activity in the Gulf of Mexico and mild temperatures.Last year, Hurricanes Katrina and Rita blew through the Gulf of Mexico, shutting down most of the region's oil and natural gas platforms and pipelines, driving energy prices to record highs.
A slowing economy, weaker housing market and conservation efforts to curb energy use are expected to shave demand for OPEC's crude this year and next. In 2006, OPEC expects demand to average 28.7 million barrels per day, down 200,000 barrels from its previous forecast last month. Daily consumption of OPEC crude is projected at 28.1 million barrels in 2007.
But crude prices could quickly reverse and increase if a hurricane ploughed through the gulf and downed pipelines or platforms, or if the U.N. Security Council imposed trade sanctions on Iran. European Union diplomats, who have been negotiating with Iran to end its nuclear development activities, said it was time for the U.N. Security Council to become involved.
"The Iranians have refused everything. We have only one solution: to return to the U.N. Security Council," says Philippe Douste-Blazy, France's foreign minister, according to
Iran, which missed an Aug. 31 deadline to halt uranium enrichment, has largely dismissed Western threats of sanctions or military action because it believes it has a right to nuclear power. Tehran maintains it needs extra electricity for its growing population, but the West maintains Iran only wants to build atomic weapons. The energy markets have been following the dispute because Iran is one of the top crude producers in the world and could slash exports.
Cold weather forecasts boosted natural gas futures earlier in the trading session today to a high of $6.92 per million British thermal units. The November contract finally settled up less than 1 cent to $6.44 per million British thermal units. Heating oil slipped 2 cents to $1.73 a gallon. Both fuels are used to heat homes. The National Weather Service expects cooler-than-average temperatures over most of the country for the next week, with the coldest temperatures reserved for the Midwest.
Energy shares shed 0.8% on the Amex Oil Index Tuesday, with
picked up ground among drillers and refiners in the index and was last up 0.3% at $67.74.