Oil prices drop nearly US$4 after tropical storm threat eases

2008-8-5  |     ONLINE EDITION

OIL prices plunged to a three-month low yesterday, briefly tumbling below US$120 a barrel in another huge sell-off after Tropical Storm Edouard seemed less likely to disrupt oil and natural gas output in the Gulf of Mexico.

Crude's steep drop, prices fell more than US$5 at one point during the day, dragged down other commodities from corn to copper and mimicked the big nosedives of the past three weeks, adding to growing beliefs that the oil bubble is at least temporarily deflating.

"What this means is that we're going to see some more relief at the pump. We're probably looking at another 10 cents of downside in retail gas prices," said Tom Kloza, publisher and chief analyst at Oil Price Information Service in Wall, New Jersey. A gallon of regular gas fell on average about half a penny overnight to US$3.881 (US$1.02 a liter).

Also weighing on oil prices yesterday was a report by the Commerce Department that consumer spending after adjusting for inflation fell in June as shoppers dealt with higher prices for gasoline, food and other items. That fed investors' expectations that a US economic slowdown is sharply curbing US demand for fossil fuels.

Light, sweet crude for September delivery fell US$3.69, or 2.9 percent, to settle at US$121.41 a barrel on the New York Mercantile Exchange. It was crude's lowest settlement price since May 5. Earlier, prices plummeted to US$119.50, the lowest level since May 6. Crude has now fallen in six of the last nine sessions and has shaved 18 percent off its trading record of US$147.27 reached July 11.

In London, Brent crude for September delivery fell US$3.50 cents to settle at US$120.68 a barrel, after earlier falling to a contract-low of US$118.80.

The dramatic dive came after traders learned that Edouard, aiming for the coasts of Texas and Louisiana, likely would not damage offshore oil and natural gas drilling platforms that sit in the storm's path.