Oil rally fails; price at $125
NEW YORK -- Oil market investors tried but failed to start a rally in crude Thursday, leaving prices hovering below $125 a barrel. At the gas pump, prices continued their retreat.
The national average for a gallon of regular dropped more than a penny and a half to $4.026 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Retail diesel is down nearly half a cent to $4.788.
Falling prices at the filling station reflect the concern of many energy traders that the weakening U.S. economy is hurting demand. Analysts say that is helping keep oil prices from racing back higher.
Light, sweet crude for September delivery rose 12 cents to $124.56 a barrel on the New York Mercantile Exchange.
The day's gains followed a sharp drop on Wednesday, when oil tumbled $3.98 to settle at $124.44 a barrel, its lowest finish since June 4. Crude has fallen in six of the previous seven sessions, and is now trading nearly 15 percent below its peak above $147 a barrel earlier this month.
In overnight trading, oil rose as high as $126.01 as some investors tried to see if the market had reached a bottom and could rebound. But the gains couldn't hold amid a growing belief that falling demand does not justify the recent high price.
Americans used 2.4 percent less fuel over the past four weeks than they did last year, the latest figures by the Energy Department's Energy Information Administration show. While that may not sound like much, industry experts say it represents a significant shift by the world's largest energy consumer. A bigger-than-expected increase in gasoline supplies only added to concerns that drivers are cutting back.
"We've grounded airplanes. People are driving less, they're trading in their SUVs," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com. "For the foreseeable future -- at least for the next 6 to 12 months -- we have demand destruction."
Cordier predicted prices could yet drop further, with oil possibly falling as low as $110 a barrel by September.
"People have changed their driving habits, and they're not going to change back anytime soon," he said.
A modestly stronger dollar helped keep prices in check Thursday, by discouraging traders who had been buying commodities as a hedge against inflation and a softer greenback.
"More than any other factor, a strong dollar would help take the air out of this market," editors at energy consultancy Cameron Hanover noted in their daily market commentary.
Investors remained on guard over a threat by Nigeria's main militant group Wednesday to destroy major pipelines in the oil exporting country within 30 days. The threat -- which only weeks ago might have caused oil prices to spike -- did little to push crude higher, however.
"We can only suggest that the market, finally weighed down by the specter of decreasing energy demand, may not be as responsive to geopolitical headlines as it once was," MF Global analyst Edward Meir wrote in a research note.
In other Nymex trading, heating oil futures more than 3 cents to $3.5808 a gallon while gasoline futures were nearly flat at $3.0375 a gallon. Natural gas futures dropped 59.6 cents to $9.192 per 1,000 cubic feet.
In London, Brent crude for September delivery rose 76 cents to $126.05 a barrel on the ICE Futures exchange in London.
Copyright 2008 The Associated Press.