Oil prices tumbled a little more than $3 a barrel Tuesday as Hurricane Dolly grew increasingly unlikely to threaten supply, knocking out one more reason traders had to prop up prices.
The sell-off recalled last week's declines, and dragged crude to its lowest level since early June. A stronger dollar helped keep prices in check.
Light, sweet crude for August delivery fell $3.09 to settle at $127.95 a barrel in its last trading day on the New York Mercantile Exchange. Earlier the contract, which will be replaced by September crude Wednesday, dropped as low as $125.63. It was crude's fourth decline in the last five sessions.
An interim report released Tuesday by a federal task force set up to examine the sharp run-up in oil prices said that fundamental supply-and-demand factors are most likely to blame. A number of lawmakers and other critics have blamed the historic rise in prices on speculators that they say are manipulating prices.
The Interagency Task Force on Commodity Markets, chaired by the Commodity Futures Trading Commission, was formed in June to examine investment practices and fundamental market factors.
The drop in prices Tuesday offered further evidence that investors who only a week and a half ago drove prices to a new high above $147 a barrel are now quickly pulling money out of the market. It was also a reminder that the lack of major news can push the market down in the same way that incremental supply concerns previously pushed prices sharply higher.
“This is more of the long exit from the market by the hedge funds,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. “A lot of these investors who have been supporting prices are hitting the road.”
There are also new indications that high oil prices are killing off demand, especially in the U.S., the world's largest oil consumer.
In its weekly pump spending survey, MasterCard found U.S. gasoline demand dropped last week for the 13th week in a row. Demand fell 3.3 percent compared with the same week a year earlier, according to the survey. Since the start of 2008, demand is down 2.2 percent.
At the same time, three more airlines posted hefty quarterly losses – including a $2.3 billion charge by No. 2 carrier United – primarily because of rising fuel costs. (See story on US Airways, Page 1D.)
Oil prices rose Monday as Dolly bore down on oil and gas installations in the Gulf of Mexico, but that did little to dent the steep declines left over from last week's sell-off.