Oil prices fall on concerns about economy, demand

Oil prices retreated for a second day on Wednesday as concern grows over whether consumers will spend more on energy in a sluggish economy.

Benchmark crude for September delivery fell $1.93 to $78.32 a barrel in midday trading on the New York Mercantile Exchange.

At the pump, the national average for a gallon of unleaded gasoline was $2.780 Wednesday, which is about 3.3 cents more than a week ago, according to AAA, Wright Express and Oil Price Information Service. The price is 13.7 cents higher than a year ago.

Traders wonder if consumer demand can strengthen while unemployment remains high. "More and more consumers seem to be holding back at the pump," energy analyst Stephen Schork said in his daily newsletter.

The Energy Department said crude oil stockpiles fell more than expected last month. Gasoline inventories grew by 400,000 barrels to 355 million barrels, although demand over the past four weeks was about 3.3 percent higher than a year ago.

A series of grim economic reports added to concerns about demand for oil and gas.

The government said the U.S. trade deficit surged in June to the highest level since October 2008. While imports of foreign consumer goods hit an all-time high, U.S. exports faltered.

The International Energy Agency predicted global oil demand will increase 2.2 percent this year and continue to strengthen in 2011. It also said the short-term economic outlook "is highly uncertain" and that significant risks to oil demand growth remain.

In China, a big importer of oil, industrial growth slowed in July. It's an indication that country's economic growth is cooling off.

Tumbling oil prices came a day after the Federal Reserve said it would begin buying government bonds to help stimulate the economy.

The decline in oil matched a downturn in stocks as investors around the world took a dimmer view of the U.S. economy. The Dow Jones Industrial Average was down 227 points at midday, with all the major indexes off more than 2 percent.

Many oil traders watch stock markets for signs of consumer sentiment.

In other Nymex trading in September contracts, heating oil fell 4.62 cents to $2.0792 a gallon, gasoline slid 7.25 cents to $2.0128 a gallon and natural gas rose 2.4 cents to $4.321 per 1,000 cubic feet.

In London, Brent crude fell $1.74 to $77.86 a barrel on the ICE Futures exchange.