Oil off more than $3; speculation discounted

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By The Associated Press

Oil prices tumbled more than $3 a barrel Tuesday as Tropical Storm Dolly grew increasingly unlikely to threaten supply, knocking out one more reason traders had to prop up prices.

The selloff resumed last week’s sharp declines and dragged crude to its lowest price since early June. A stronger dollar helped keep prices in check.

Light, sweet crude for August delivery fell $3.09 to settle at $127.95 a barrel in its last trading day on the New York Mercantile Exchange. Earlier the contract, which will be replaced by September crude Wednesday, dropped as low as $125.63. It was crude’s fourth decline in the last five sessions.

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Stocks on Wall Street rose accordingly, as they have since oil prices started falling in the past two weeks.

In related news:

 A federal task force set up to examine the sharp run-up in oil prices says in an interim report that fundamental supply-and-demand factors, not speculation, are most likely to blame.

The Interagency Task Force on Commodity Markets, chaired by the Commodity Futures Trading Commission, was formed last month to examine investment practices and fundamental market factors.

 The task force plans to continue evaluating markets and issue a further report later this year.

The drop in prices Tuesday offered further evidence that investors who only a week and a half ago drove prices to a new high above $147 a barrel are now quickly pulling money out of the market. It was also a reminder that the lack of major news can push the market down in the same way that incremental supply issues previously pushed prices sharply higher.

“This is more of the long exit from the market by the hedge funds,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. “A lot of these investors who have been supporting prices are hitting the road.”

There are also new indications that high oil prices are killing off demand, especially in the U.S., the world’s largest oil consumer.

In its weekly pump spending survey, MasterCard found U.S. gasoline demand dropped last week for the thirteenth week in a row.

Oil prices came under added pressure from a stronger dollar. The currency rose sharply against the euro after Charles Plosser, president of the Federal Reserve Bank of Philadelphia and a voting member of the Fed’s Open Market Committee, said the central bank will probably need to boost interest rates “sooner rather than later.”

The dollar’s decline has been a major factor in oil’s ascent, as investors bought dollar-denominated crude contracts as a hedge against inflation and a weakening greenback. When the dollar strengthens, such currency-related buying often unwinds.

The price of natural gas fell below $10 per 1,000 cubic feet for the first time since April. Prices for the power generation and cooking fuel dropped to $10.032 per 1,000 cubic feet, down 47.8 cents. Earlier, prices dipped as low as $9.889.

Natural gas has plummeted since early July, when it reached its highest point in more than two years.

Retail gas prices continue to fall, with the national average cost for a gallon of gas dropping more than a penny overnight to $4.055, according to AAA, the Oil Price Information Service and Wright Express.

It is the first time since January that gas has fallen for two consecutive weeks, analyst and trader Stephen Schork said.

Oklahoma oilman T. Boone Pickens asked Congress on Tuesday to ``clear the path'' for his plan to boost use of wind and natural gas for U.S. energy needs.

   Pickens has been on a $58 million publicity tour to promote his plan to erect wind turbines in the Midwest to generate electricity, replacing the 22 percent of U.S. power produced from natural gas. The freed up natural gas then could be used for transportation.