Oil futures fell Tuesday, dropping below $89 after financial markets were surprised by data indicating the traditionally strong service...
NEW YORK — Oil futures fell Tuesday, dropping below $89 after financial markets were surprised by data indicating the traditionally strong service sector shrank dramatically in January, raising the prospect that demand for energy will weaken with the economy.
Expectations that crude supplies are climbing also took prices lower.
Analysts forecast that crude supplies grew last week by 2.6 million barrels, according to a survey by Dow Jones Newswires. The Energy Department will issue its weekly report on oil inventories today.
“Crude and products futures are lower … as continued fears of a recession in the U.S. coupled with forecasts for another considerable build in U.S. crude stocks take some of the steam out of the market,” said Addison Armstrong, director of exchange-traded markets at TFS Energy Futures in Stamford, Conn.
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Light, sweet crude for March delivery fell $1.61 to settle at $88.41 a barrel on the New York Mercantile Exchange.
Oil prices are off more than $10 from last month’s record of $100.09 a barrel, largely due to growing concerns about the economy.
Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill., said large investment funds are increasingly looking at price rallies as opportunities to sell futures.
“They’re using rallies … as an opportunity to reduce their long holdings” or sell oil contracts, Ritterbusch said. Funds are also increasingly short-selling the oil market, or placing bets that prices will fall, he said.
At the pump, meanwhile, gas prices were unchanged Tuesday at $2.977 a gallon, according to AAA and the Oil Price Information Service. Gas prices, which typically lag the futures market, have been mostly falling lately, following oil’s retreat.
The Energy Department expects gas prices to rise to new highs near $3.50 a gallon this spring, but analysts say the prospect of a severe slowdown throws such dire forecasts into question.