Oil Realizes Biggest Dollar Decline in 17 Years

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Oil Realizes Biggest Dollar Decline in 17 Years

NEW YORK -- Federal Reserve Chairman Ben Bernanke broke news yesterday that risks to growth and inflation increased, which was supported by U.S. gasoline demand rates falling by 5.2 percent last week. This marks the 12th consecutive weekly drop.

As oil experienced its largest dollar decline since January 17, 1991, Bernanke broke from the assessment he made last month saying that the threat of an economic slowdown was wavering.

Compared to the same time period last year, MasterCard reported that U.S. retail gasoline demand fell by more than 5 percent last week. "We're not seeing the uptick that we've seen seasonally," Michael McNamara, vice president of research and analysis at MasterCard Advisors, told Reuters.

According to McNamara, recently complied data indicates that drivers are cutting back on gas purchases during the week. He said more motorists are seeking alternative transportation.

"If a recession happens in the U.S. and if it's a bad one, it could have an impact on the whole world, and that is the fear," Anthony Nunan, Tokyo-based assistant general manager for risk management at Mitsubishi Corp., told Bloomberg News. "This could be a temporary blip as demand in developing economies is still strong unless we see big rise in inventories or supplies."

The Organization of Petroleum Exporting Countries (OPEC), which supplies nearly 40 percent of the world's oil, said its forecasted global oil demand has been reduced over the next six months. OPEC cited lower demands for transport fuel in the U.S.; however, it
expects demand for crude will drop in 2009 as the global economy slows. Demand for OPEC crude next year will average 31.2 million barrels a day, a drop of 710,000 barrels a day from the forecast for 2008, reported Bloomberg.

Yesterday, crude oil for August delivery was up 6 cents at $138.80 a barrel. Futures reached a record $147.27 a barrel on July 11, and have risen 87 percent in the past year, Bloomberg reported.

"When it traded below $140, a big wave of selling hit," Addison Armstrong, director of market research at TFS Energy in Stamford, Conn., told Bloomberg News. "The market was trading a little bit above $140, and when it traded below, it fell something like $2 in a minute. Nothing seemed to hold it."