US crude prices fell sharply on Tuesday, slumping a second straight day and posting the first monthly decline since May as concerns about faltering economic growth, weak demand and bulging oil inventories pressured crude and gasoline futures.
The expectation that Hurricane Earl will brush the US East Coast and squelch gasoline demand during the approaching Labour Day holiday weekend added to the bearish sentiment. US October crude fell $2.78, or 3.72 percent, to settle at $71.92 a barrel, trading as high as $74.73 and slumping as low as $71.53 in post-settlement trading.
For the month, US crude ended down $7.03 a barrel, or 8.9 percent, the biggest monthly percentage loss since May, when oil prices hit a 2010 low of $64.24 on May 20, the weakest front-month price since July 2009, after reaching the 2010 peak of $87.15 on May 3. On Tuesday, October Brent crude dropped $1.96 to settle at $74.64 a barrel. "End-of-the-month volatility has pulled down crude futures today, with the expiration of refined product futures adding pressure," said Mark Waggoner, president at Excel Futures in Bend, Oregon.
The market was awaiting weekly oil inventory data from the American Petroleum Institute due at 4:30 pm EDT (2030 GMT) on Tuesday. Analysts in an expanded Reuters poll on Tuesday expected a 1.1 million-barrel gain in crude stocks in the week to August 27.
Adding to the bearish sentiment was a report from the Institute for Supply Management-Chicago that showed business activity in the US Midwest slowed in August. While no US landfall had been projected for Hurricane Earl, authorities voiced concern about a possible "close approach" to the North Carolina coast. In addition to Earl, the US National Hurricane Center was monitoring two other tropical systems in the Atlantic basin. So far, computer models showed no immediate threat to energy infrastructure in the Gulf of Mexico region.
"Earl being expected to brush the East Coast pushed oil down today because it may wipe out the expected Labour Day demand. And the MasterCard (gasoline) demand data reinforced the weak demand scenario," said Phil Flynn, analyst at PFGBest Research in Chicago.
The US Labour Day holiday on Monday is the traditional end of the summer driving season and MasterCard said on Tuesday that US weekly retail gasoline demand fell 3.1 percent last week from the previous week and managed only a 0.7 percent rise versus the year-ago period.
Expiring US September gasoline fell 4.47 cents to settle at $1.8894 a gallon. September heating oil also went off the board, dropping 3.08 cents to $1.9944 a gallon. The outlook for the US economy would have to deteriorate "appreciably" to spur fresh support from the Federal Reserve, minutes of the central bank's last policy meeting released on Tuesday said. Traders noted that oil markets were already in a cautious mood ahead of Friday's August US nonfarm payrolls report.
"The Fed is clearly concerned about the state of the recovery, if there still is one, and is looking for effective constructive measures," said John Kilduff, partner at Again Capital LLC in New York. Crude failed to get a boost from the weak dollar, which remained pressured against the yen and the euro after the Fed minutes release. The dollar index also weakened.
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