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Oil Falls $6.44

The Wall Street Journal Home Page

Bernanke Talks, Oil Falls $6.44

By GREGORY MEYER and BRIAN BASKIN
July 16, 2008; Page C16

Crude-oil futures sank more than $6 a barrel Tuesday after the Federal Reserve chairman sounded bleak notes on the U.S. economy, and world supplies loosened a bit.

Light, sweet crude for August delivery settled down $6.44, or 4.4%, at $138.74 a barrel on the New York Mercantile Exchange, falling farthest in dollars since Jan. 17, 1991, after the U.S. opened its Strategic Petroleum Reserve at the onset of the first Gulf War.

Nymex crude traded in a range of more than $10, and at one point was as low as $135.92 a barrel, down $9.26.

Crude’s steep decline followed Senate testimony by Federal Reserve Chairman Ben Bernanke. While taking pains to highlight tightness in world oil markets, he also described a more persistent weakness in the economy than officials have indicated in the past. He said the U.S. is unlikely to recover until the housing market stabilizes — by year end at the earliest.

Oil watchers interpreted Mr. Bernanke’s comments as a sign that oil demand, which is down 2.6% year to date in the U.S., may continue to sputter amid record high prices and economic woes.

“There are times in the market when a speech can help crystallize a shift in perception of oil or economic fundamentals,” said Antoine Halff, deputy head of research at futures brokerage Newedge USA in New York, “and help participants take stock of changes in dynamics that may not yet be fully captured” in demand statistics.

The Organization of Petroleum Exporting Countries issued a report Tuesday indicating world demand over the next year will be lower than expected. The International Energy Agency and the U.S. Energy Information Administration have also lowered their 2008 demand forecasts several times this year.

Supply problems that have recently shaken markets began to ease. In Nigeria,Chevron Corp. restarted a pipeline that militants had attacked in June, potentially restoring about 120,000 barrels a day in light crude. Separately, Royal Dutch Shell PLC has lifted a force majeure on its Nigerian Bonny oil production invoked in late May following an attack on a pipeline.

Losses in the oil market snowballed as more and more trading interests hit sell stops — price levels that trigger an automatic sale.

“When this thing unravels, it will be ugly…. It will be ‘shoot first and figure it out later,’ ” said Dean Hazelcorn, a trader with Coquest Inc. in Dallas. Futures avoided falling below $135 a barrel, a support level tested many times over the past few weeks, indicating that a recovery could be in the works, he said.

Write to Gregory Meyer at [email protected] and Brian Baskin at[email protected]

http://online.wsj.com/article/SB121613015084154501.html

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