Oil prices drop about $4 after storm threat eases

By STEVENSON JACOBS, AP Business Writer 7 minutes ago

NEW YORK - Oil prices plunged in a massive sell-off Monday, falling below $120 a barrel for the first time since early May after Tropical Storm Edouard appeared unlikely to threaten oil and natural gas facilities in the Gulf of Mexico.

Light, sweet crude for September delivery fell more than $5 at one point to $119.50 a barrel on the New York Mercantile Exchange, its lowest level since May 6. The contract later recovered slightly, trading $3.92 lower, or 3.13 percent, at $121.18 a barrel. Crude has now fallen in six of the last nine sessions and has shaved 18 percent off its trading record of $147.27 reached July 11.

The dramatic dive in oil came shortly after traders learned that Edouard, aiming for the coasts of Texas and Louisiana, likely would not damage offshore oil and natural gas drilling platforms that sit in the storm‘s path.

Meanwhile, retail gas prices kept falling, reflecting the continuing price-driven drop in U.S. fuel demand. A gallon of regular gas fell on average about half a penny overnight to $3.881.

"They still have expensive gas to feed into the system, so they‘re reluctant to drop prices," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "Prices never come down as fast as they go up."

The Illinois senator also reiterated his statement Friday that he could now support limited new offshore drilling in the U.S. if needed to enact a compromise energy policy that would foster fuel-efficient autos and alternative energy sources.

Oil prices began the day trading mostly lower after the Commerce Department said consumer spending fell by 0.2 percent in June, the worst showing since February.

Edouard was threatening to pick up strength from warm Gulf waters and gain near-hurricane speeds over the next 24 hours. forecasters said.

"He‘ll just be (a) little tropical storm tike compared to big mamma‘s that rip things up and spike gas prices," the Houston-based securities firm Tudor Pickering Holt & Co. said in a note to investors Monday.

On Sunday, Iranian President Mahmoud Ahmadinejad said diplomacy was the only way out of the standoff and insisted he was serious about negotiations. Those comments came a day after he asserted his country would not give up its "nuclear rights," signaling that it would refuse demands to stop enriching uranium or at least not to expand its enrichment work.

In other Nymex trading, heating oil futures fell 8.27 cents to $3.3541 a gallon. In London, Brent crude for September delivery fell $3.28 cents to $120.90 a barrel.

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Associated Press writers Janet McConnaughey in New Orleans and Tom Raum, Mathew Lee and Martin Crutsinger in Washington contributed to this report.



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