Oil slips as fuel costs threaten demand

2011-04-07 09:21

Singapore - Oil prices fell to near $108 a barrel on Thursday in Asia on concern rising fuel costs could undermine US economic growth and demand for crude.

Benchmark crude for May delivery was down 51c at $108.32 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract gained 49c to settle at $108.83 on Wednesday.

In London, Brent crude for May delivery was down 54c to $121.39 a barrel on the ICE Futures exchange.

Crude has traded near $108 this week as traders mull the impact of Libya's civil conflict, a weakening US dollar and China's fourth interest rate hike since October. Investors are also concerned a 29% jump in oil prices since mid-February will force consumers to spend more on fuel costs and will eventually undermine crude demand.

Regular unleaded gasoline in the US currently averages $3.69 a gallon, up 23% from a year earlier.

"The main worry is that with more of the consumer's budget going toward gas at the pump, it will hold back the nascent recovery," said Anthony Michael Sabino, a professor at St. John's University's business school. "It will put a crimp into spending plans for corporate America, as the costs of energy, transportation, and so forth rise accordingly."

In other Nymex trading in May contracts, heating oil fell 1.2c to $3.18 a gallon and gasoline dropped 1.4c to $3.18 a gallon. Natural gas futures were down 1.5c at $4.13 per 1 000 cubic feet.

  • AJ Ray - 2011-04-07 11:54

    The knock on effect is being felt in the wine industry already with lower demand being further hammered by increasing costs. Watch this space.

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