Updated from 11:58 a.m. EDT
Oil prices tumbled to a one-month low Monday after OPEC officials said high energy prices were crimping demand.
Light, sweet crude for June delivery lost $2.63 to settle at $69.41 a barrel amid a broad selloff in commodity markets. Oil futures were last this low on April 7. Unleaded gasoline took a cue from oil and plunged 12 cents, or about 6%, to $2.05 a gallon. The drop came as gold, copper and silver fell for a second day.
"When prices are high, people check their pockets, and when prices are low they open their pockets," said Saudi Arabian oil minister al-Naimi at a Jordanian oil conference Monday,
His comments came three days after the International Energy Agency's downwardly revised its global energy demand forecast. The group, which advises 26 countries on energy policy, trimmed its estimate for demand growth by 220,000 barrels to 1.25 million barrels per day, citing high energy prices. After the reduction, crude futures plunged $1.24 to close at $72.04 on Friday.
"Supply is ahead of demand," said al-Naimi, according to
World oil demand is projected at 84.8 million barrels per day, down from 85.1 million.
Energy traders took al-Naimi's comments and the IEA's revised forecasts as the latest indications crude prices may drop. The Federal Reserve's 16th interest rate hike on Wednesday, which is now at its highest level in more than five years, is expected to slow down the U.S. economy.
"The question is on everyone's mind is whether or not it's over," wrote John Kilduff, an energy analyst at Fimat USA in New York. "If high commodity prices and the Federal Reserve combine to successfully stem economic growth, then, we may be at the beginning of the end of days for this five-year price rally."
This year, crude prices have risen 20% thanks to razor thin supply margins and booming demand from China, India and the U.S. Concern over Iran's nuclear intentions, reduced crude exports from Iraq and reductions in Nigerian exports have also propped up prices.
Production declines in OPEC members Iran, Nigeria, Venezuela and Indonesia, who have each fallen short of their monthly quotas every month this year, have also led to some of the falloff in world oil supplies. Nigerian rebels, aging fields with declining production and a campaign to renationalize Venezuela's oil fields have accounted for the reductions. OPEC pumped around 29 million barrels of crude last month.
Nigerian rebels have, through pipeline and platform attacks, shaved the country's crude exports by a quarter from a high of 2.2 million barrels per day. Oil giants like
Royal Dutch Shell
have borne the brunt of the output losses, with daily production down around 455,000 barrels.
Despite OPEC's production decline, al-Naimi said OPEC was expanding production capacity. In March, Saudi Arabian oil capacity rose nearly 3% when it opened the Haradh oil field project to 11.3 million barrels per day. The kingdom is in the midst of a five-year campaign to increase its daily output 14% to 12.5 million barrels. All told, the expansion will cost $14 billion.
The improvements will help boost supplies and may drive down prices, but they likely won't come soon enough. The IEA cut its projection for global consumption of OPEC crude this year by 200,000 barrels to 29.2 million barrels per day.
The drop in oil prices, mild weather and robust inventories were driving down futures of heating oil and natural gas on Monday. Heating oil dipped 10 cents to $1.94 a gallon, and natural gas declined 16 cents to a one-year low of $6.12 per million British thermal units.
Beginning April 1, utilities start adding to their stockpiles once the winter and high heating demand ends. Mild temperatures have kept supplies high because utilities don't need as much. Supplies are currently 33% above last year and 56% above the five-year average.
Energy shares plunged Monday, with the Amex Oil Index and the Philadelphia Oil Service Index each down 3%. Both track companies in the oil business. Among oil drillers,
were posting the largest declines.
Oil service companies
were falling the most in the Philadelphia Oil Service Index