Oil Falls to $118 as Global Economy Slows, Storm Danger Abates

Aug. 5 (Bloomberg) -- Crude oil fell to $118 a barrel amid signs demand may be curtailed by slowdowns in the U.S. and European economies.
Oil dropped as much as 2.8 percent as the services sectors in the U.S. and U.K. contracted in July, and European retail sales declined by the most in at least 13 years in June. Tropical Storm Edouard made landfall today on the Texas coast. Early estimates showed it left oil rigs and refineries undamaged.
``Demand numbers have been weak here for quite a period of time,'' said Roger Read, an analyst at Natixis Bleichroeder Inc. in Houston. Today's numbers ``may confirm expectations, but they're not a shock to the system.''
Crude oil for September delivery fell $2.37, or 2 percent, to $119.04 a barrel at 11:22 a.m. on the New York Mercantile Exchange.
Oil has lost $27 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted U.S. consumers to limit spending. Yesterday, the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 3.5 percent, its biggest loss since March.
U.S. fuel demand averaged 20.2 million barrels a day during the past four weeks, down 2.4 percent from a year earlier, the Energy Department said July 30.
Service industries in the U.S. shrank in July for a second straight month, signaling the slowdown in growth broadened. U.K. services from banks to airlines also contracted in July, and factory production unexpectedly dropped for a fourth month in June, evidence the economy may be shrinking.
European Data
European retail sales dropped by the most in at least 13 years in June as a surge in oil and food costs left consumers with less money to spend on other goods.
``We were down big overnight, and it really started on the European soft market data on manufacturing,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Retail sales were pretty lousy, leading everyone to surmise that the European economy isn't immune to the slowdown here in the U.S.''
The dollar rose to a six-week high against the euro before a Federal Reserve meeting today at which policy makers may leave interest rates on hold and highlight concern about inflation. The dollar traded at $1.5487 per euro, and touched $1.5463 the strongest since June 18.
Gold, platinum and wheat dropped on speculation slower growth will curb demand and as a stronger dollar dulled the appeal of commodities as an inflation hedge.
Oil dropped to its lowest level since May 5 as Edouard's wind speeds remained below hurricane strength when it struck the Texas coast. Edouard was blowing toward Galveston, Texas, with winds as fast as 65 miles (100 kilometers) per hour, prompting the evacuation of some oil and gas rigs.
Idled Output
U.S. producers idled less than 1 percent of oil output and 7.2 percent of natural gas production in the Gulf of Mexico because of Edouard, the U.S. Minerals Management Service said yesterday.
``Very little oil production seems to have been shut in by Edouard,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``Gasoline stocks are high enough to limit any crisis from refinery shutdowns, so the market's returning its attention to the weak demand picture.''
Hurricane forecasters from Colorado State University today raised the number of Atlantic storms they expect this year to 17, including nine hurricanes, five of them major. The hurricane season, which runs through Nov. 30, should be ``much more active'' than those between 1950 and 200, the report said.
Gasoline Stockpiles
U.S. gasoline stockpiles are 3 percent above their five-year seasonal norm at 213.6 million barrels, according to the Energy Department. The department will probably say gasoline supplies fell 1.75 million barrels last week in its weekly report tomorrow, a Bloomberg survey predicted.
Gasoline for September delivery lost 2.98 cents, or 1 percent, to $2.9704 a gallon on the Nymex after touching $2.9242 a gallon, the lowest since May 2. Futures fell 13 percent last month, the biggest drop since September 2006, as a slowing economy cut demand for the motor fuel.
Regular gasoline at the pump, averaged nationwide, fell 1 cent to $3.871 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17, as higher prices curbed demand.
Brent crude for September settlement fell $2.10, or 1.7 percent, to $118.58 a barrel on London's ICE Futures Europe exchange. Earlier, it touched $116.91 a barrel.
Kuwait ``isn't worried'' about the recent price decline and doesn't expect the Organization of Petroleum Exporting Countries to reduce production quotas when it meets next month, Oil Minister Mohammed al-Olaim said in an interview today.