Oil below $70 on weak demand

NEW YORK -- Energy prices tumbled Friday on more evidence that U.S. consumers are unlikely to take the lead in an economic recovery.

Crude this year has risen steadily on optimism that people will begin spending more freely, so a week-ending report suggesting those hopes may be premature was enough to send prices falling 3.5 percent.

Benchmark crude for September delivery slipped $2.48 to $68.04 a barrel on the New York Mercantile Exchange, a low point for the month. In London, Brent prices lost $1.18 to $72.30 a barrel on the ICE Futures exchange.

Prices for oil and gas fell along with equities markets after the Reuters/University of Michigan index of consumer sentiment fell sharply in the first part of this month.

The report comes amid a string of weak earnings reports from major retailers, which continued to arrive on Friday. Abercrombie & Fitch Co. reported its third straight quarter of double-digit sales declines.

The weak dollar has propped up oil prices for weeks with investors using the commodities market as a hedge.

Yet it is becoming increasingly difficult to ignore the lack of enthusiasm from consumers, who account for about 70 percent of all U.S. economic activity.

There is little evidence that demand for energy from consumers, or businesses, is rebounding.

That has played out in weekly government reports on the amount of crude and natural gas being plowed into storage. In just the past two weeks, crude levels have risen by nearly 7 million barrels.

The price for crude contracts that don't require delivery until four to five months from now is higher than prices contracts that must be settled in September. It is not a sign that traders think there will be more demand in several months.

Rather, those buying crude are adding in the cost of storage because so little is being used to make gasoline and other fuels.

In fact, refiners have cut back on production for the past four weeks.

Meanwhile, the Federal Reserve said factories, mines and utilities increased production in July more than expected, driven by the auto makers and the cash-for-clunkers program. It was only the second time production rose since December 2007.

In other Nymex trading, gasoline for September delivery gave up 7.12 cents to $1.948 a gallon. Heating oil fell 5.88 cents to $1.844 a gallon. Natural gas for September delivery dropped 4.3 cents to $3.293 per 1,000 cubic feet.