Oil prices down amid rising rig count, soft US economic data
The price of oil slid Monday as traders braced for softer demand amid an increase in the number of active rigs and weak United States economic reports on construction spending and manufacturing.
US crude was down US$1.95 to US$45.17 a barrel in afternoon trading in New York, the lowest price in more than four months. The price of oil slumped 21 per cent in July on evidence of a global supply glut and speculation that global demand is set to weaken.
Benchmark US crude has been declining since reaching a high this year of US$61.43 a barrel on June 10. It's down 15 per cent so far this year.
Brent crude, a benchmark for international oils used by many US refineries, was down US$2.38, or 4.6 per cent, to US$49.83 a barrel in London. It's down 13 per cent this year.
Several factors have put pressure on oil prices.
Oil-production companies have been increasing the number of rigs they have drilling for crude in recent weeks.
The number of rigs exploring for oil in the US rose by five last week to 664, according to oilfield-services company Baker Hughes Inc. All told, the rig count has increased in four of the past five weeks.
That contributed to a 21 per cent decline in the price of oil last month.
On Monday, a couple of economic reports weighed on oil prices, adding to growing speculation that global demand is set to weaken.
The Institute of Purchasing Managers' manufacturing index slipped to 52.7 last month from 53.5 in June. The latest reading, which economists had expected to remain unchanged from the previous month, signals that US factories were a little less busy in July.
Meanwhile, the Department of Commerce said construction spending rose just 0.1 per cent in June from a month earlier.
"Some of the economic numbers that came out today were not supportive of an increase in demand," said Robert Yawger, director of energy futures at Mizuho Securities USA. "It's a headline market and the headlines have all been negative."
US stocks also fell on Monday, led by the slumping energy sector, as the price of oil continued to fall. The Standard & Poor's 500 index was down by 13 points at 2,088 as of 2:58 p.m. Eastern; the Dow Jones industrial average dropped 178 points to 17,510, and the Nasdaq composite fell 33 points to 5,095.
The big drop in oil has pushed down gas prices, putting more money in consumer's pockets. That hasn't led to a pickup in spending yet, suggesting that consumers are saving the extra cash rather than spending it. That has surprised investors.
"There was this expectation that (the fall in oil prices) would translate into other areas, such as stronger consumer spending, and stronger (company) earnings," said Jennifer Ellison, a principal at San Francisco-based investment firm Bingham, Osborn & Scarborough. "But we're really not seeing the consumer spend the way that was anticipated."