Consumer Demand Forcing Crude Prices Down

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Consumer Demand Forcing Crude Prices Down

NEW YORK -- In response to sticker shock from record-high gas prices, consumers have curbed their driving habits, which for the moment have dropped oil prices by $24 a barrel or 17 percent since July 3, reported The New York Times.

Yesterday, this trend continued as crude oil prices fell 2.5 percent, to $122.19 a barrel, the lowest level since the beginning of May. Natural gas prices, which had risen the fastest this year as traders anticipated a hot summer, have fallen 33 percent since the beginning of the month, The New York Times reported.

"The market's expectations have changed very rapidly and unexpectedly," Edward Morse, the chief energy economist at Lehman Brothers, told the paper. "The market went out of control on the upside. But market participants realized there was much more demand destruction than had been thought even a month ago, that inventories are building up quickly, and that, in fact, more supplies are coming onto the market."

If this trend continues, oil might drop as low as $70 a barrel by year-end, the president of OPEC, Chakib Khelil, said Tuesday. The shift is reflected at the pump with AAA reporting average prices on Tuesday resting below $4 a gallon at $3.94; however, it is a $1.05 higher than this time last year. Analysts say a significant drop will be tied to numerous variables including the American economy and its impact on the rest of the world.

The recent talks between Iran and America have also eased risk associated with oil futures. "The one piece of good news we've had recently has been the drop in oil
prices," Bernard Baumohl, the chief global economist at the Economic Outlook Group, told the paper. "But there is nothing that tells us with any certainty that this decline can be sustained. Just as abruptly as they have fallen, oil prices can rebound because of geopolitical factors."