Energy prices slump on Labor Department report
NEW YORK -- Energy prices slumped Tuesday on a Labor Department report that suggested consumer spending, a major economic driver, may be depressed for some time as companies cut back.
Benchmark crude for September delivery fell $1.37 to $69.23 a barrel on the New York Mercantile Exchange after falling 33 cents to settle at $70.60 on Monday.
Oil prices have ended the week higher for five straight weeks, a period that coincides with earnings reports from U.S. companies. The results appeared surprisingly healthy, which gave energy prices a boost on the belief that the recession has loosened its grip.
While that may be true, data from the Labor Department Tuesday again showed that company profits were in many cases buoyed by less spending on employee pay.
The Labor Department reported that productivity, the amount of output per hour of work, rose at an annual rate of 6.4 percent in the April-June quarter.
In normal economic times companies might pay workers more and increase production. Yet companies during the recession have instead frozen their hiring and cut hours to prop up profits.
If workers are not getting the hours they need, the pullback on spending for everything from gasoline to products made from petroleum, will likely remain depressed.
Crude had be trading higher all morning on reports from China that the nation's exports, retail sales and factory output improved in July, and the country imported a record 4.6 million barrels of fuel a day last month.
The markets reversed course when the Labor Department released its report and oil prices fell 2 percent.
The monthly forecast by the Organization of Petroleum Exporting Countries also may have helped pushed energy prices down. OPEC -- responsible for about a third of the world's crude production -- said it expected demand to fall by 1.65 million barrels a day this year, compared with last year, before rising in 2010.
The Federal Reserve on Tuesday begins a two-day meeting that could shed more light on the U.S. economy. A rate hike is highly unlikely, but people want to hear what the Fed will say about the state of the economy, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
"By and large, we're just taking a little of this economic optimism out of the market right now and responding to the possibility that we're going to see a more stable currency environment going forward," he said.
The falling dollar has also helped push crude prices up because oil is priced in the U.S. currency.
In other Nymex trading, gasoline for September delivery fell 1.2 cents to $2.0154 a gallon and heating oil fell 2.7 cents to $1.9009. Natural gas for September delivery fell 8.7 cents to $3.554 per 1,000 cubic feet.
In London, Brent prices fell $1.31 to $72.19 a barrel on the ICE Futures exchange.