Oil prices fell for a third day before the U.S. Federal Reserve meets to discuss monetary policy, which for months has helped to drive crude prices higher.
Benchmark crude for October delivery lost more than three per cent, or US$2.33, to settle at $69.71 a barrel on the New York Mercantile Exchange.
With the October contract set to expire on Tuesday, traders were focusing more on the November contract, which fell $2.56 to settle at $69.93.
Natural gas futures, which have soared throughout the month, fell sharply, as did most other fuels.
Energy consumption in North America and Europe has been crimped by recession, leaving China as one of the few countries that continue to consume oil, gasoline and diesel in large quantities. That pace, at least during late summer, appeared to slow.
Chinese oil demand slid 5.4 per cent in August from July, the first month-to-month drop since March, according to Platts, the energy information arm of McGraw-Hill Cos., as the world’s second largest oil consumer reined in oil imports and crude throughput rates at its domestic refineries.
“August seems to have brought a reality check for refiners in China,” Vandana Hari, Asia news director at Platts, said in a statement. “Domestic fuel demand has clearly been lagging their high processing rates, and storage space is finite.”
Another key market driver is the dollar, which rose Monday ahead of a big week in global economic matters, said PFGBest analyst Phil Flynn.
The G20 meets in Pittsburgh this week to assess what went wrong with the global economy and try to fix it. The Fed gathers to decide whether or not it’s time to remove some of the props that have been supporting financial markets.
The U.S. has spent billions on economic stimulus programs and to support faltering banks, which has eroded the U.S. dollar’s value against the euro and other major currencies.
A weak U.S. dollar attracts more money to oil markets because crude is priced in the U.S. currency. As the value of the dollar fell this year, oil began to rally.
There are also some concerns that if some of the current economic supports are removed, demand for energy may dip in the near term.
The recession has already sapped American fuel consumption, and U.S. oil stockpiles are 14 per cent larger than last year. Storage levels for distillate fuels, including heating oil, are approaching a 27-year highs, according to the Energy Information Administration.
The average price for a gallon of regular gasoline in the United States held steady overnight at $2.551, according to auto club AAA, Wright Express and Oil Price Information Service. That’s 7.5 cents more than a month ago, but nearly $1.21 less than at this time last year.
In Canada, the price of gas averaged 99.4 cents Canadian per litre, down from $1.028 per litre a month ago and $1.265 per litre a year ago.