Oil falls to near $100 a barrel

Price is down 30% from July peak but could soon rise again

In the United States, demand for petroleum products is down 4 percent from a year ago, the US Department of Energy reported yesterday. Oil hit a record price of over $145 a barrel in July. Above, oil tanks in Bayonne, N.J. (Mark Lennihan/Associated Press)

Oil prices are falling quickly, hovering near $100 a barrel for the first time in six months, just as Americans are changing driving habits, governments scramble to rewrite energy policies, and investors pour millions of dollars into alternative energy companies.

Crude prices have fallen 30 percent since closing at a record $145.29 in July, falling back to almost $100 even faster than they advanced. Yesterday, crude closed in New York at $102.58 after dipping to just above $101, the lowest close since March.

The declines are welcome relief for families pinched by $4-a-gallon gasoline this summer and worried about paying for heating oil next winter. But oil prices are still much higher than they were a year ago, when crude traded at about $80 a barrel, and many economists don't expect them to drop much below $100.

Global Insight, a Waltham forecasting firm, projects that crude will bottom out at about $90 a barrel before climbing again to an average of $109 a barrel next year.

Analysts also note that global supplies remain tight and that any serious disruption - from hurricanes in the Gulf of Mexico to violence in the Middle East - could send them spiking again.

"Longer term, I can predict with confidence that the price of oil will be higher," said Lester Lave, a professor at Carnegie Mellon University in Pittsburgh. "If you are looking to buy that SUV, you better be prepared to drive it a lot in the first few years, when gas is cheap, because you are not going to be able to drive it a lot after that."

Analysts attribute the recent slide in prices to slumping demand, and worries among investors that demand will weaken further. In the United States, the Department of Energy reported yesterday, demand for petroleum products declined nearly 4 percent from a year ago. The International Energy Agency lowered its forecast for global oil demand by 100,000 barrels a day this year and 140,000 barrels a day next year. Worldwide, 87 million barrels of oil are consumed daily.

Concerns about weakening demand appear to be trumping supply worries. Oil prices dropped yesterday even as the Energy Department said that US crude inventories fell by nearly 6 million barrels and the Organization of Petroleum Exporting Countries, or OPEC, said it would cut production by about 500,000 barrels a day to shore up sagging prices. Saudi Arabian officials, however, said they would ignore the wishes of other cartel members and keep pumping oil. The Saudis' position is that lowering prices now will prevent a recession that would cause oil prices to collapse.

Earlier in the year, any hint of tighter supplies sent prices soaring. The run-up was driven in large part by investors' perception that global demand would stay strong, despite an economic downturn in the United States, because European and Asian economies seemed solid.

The economic slowdown, however, has spread. Europe and Japan are near recession, and even China's growth has slowed as US and European consumers curb spending. The US economy, meanwhile, continues to weaken.

A strengthening dollar, which yesterday rose to its highest level against the euro in nearly a year, has also helped to bring oil prices down. Oil trades in dollars, so when the dollar is worth less, producers demand higher prices to make up for the loss in value.

The earlier surge in oil prices "was the combination of extraordinary changes in the exchange rate . . . and it was the economy doing better than we thought," said Mary Novak, of Global Insight.

Now, the outlook has changed. Massachusetts' average gas price has fallen to $3.58 a gallon, and heating oil has slid to $4.04.

But Jeff Bursaw, of Bursaw Gas and Oil in Acton, said that the volatility of oil prices makes it too risky to offer heating oil customers a season-long contract at a fixed price. "Predicting prices is a waste of time," he said. "But we're just enjoying the ride down."

Erin Ailworth can be reached at eailworth@globe.com; Robert Gavin at rgavin@globe.com.