Oil slips to near $71 amid mixed US economic news

[August 05, 2009]  LONDON (AP) -- Oil prices slipped to near $71 a barrel Wednesday as mixed economic news from the U.S. stalled a weeklong rally.

By midday in Europe, benchmark crude for September delivery was down 35 cents to $71.07 a barrel in electronic trading on the New York Mercantile Exchange. On Tuesday, the contract fell 16 cents to settle at $71.42.

Crude prices have jumped from below $63 a barrel last week on investor optimism the U.S. economy, the world's biggest oil consumer, is recovering from a severe recession.

On Tuesday, the Commerce Department said consumer spending rose 0.4 percent in June. But personal incomes dropped by 1.3 percent, the steepest slide in four years.

"Consumer spending is still in the dog house," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. "We're living off government stimulus, which is going to end not too long from now."

U.S. crude inventories unexpected fell last week, a sign demand could be rebounding.

Inventories dropped 1.5 million barrels last week, the American Petroleum Institute said late Tuesday. Analysts expected the API numbers to gain 1.5 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Gasoline supplies rose 2.1 million barrels.

Investors will be watching for inventory data from the Energy Department's Energy Information Administration on Wednesday for more signs about crude demand.

The API numbers are reported by refiners voluntarily while the EIA figures are mandatory.

Crude will likely trade between $65 a barrel and $85 the rest of the year, Kornafel said.

"I think all the optimism is somewhat misplaced," Kornafel said. "People don't understand that things can get bad and stay bad for more than two years."

U.S energy consultancy Cameron Hanover used wrestling terms to illustrate the shift in oil markets away from fundamentals and toward external factors.

"After a quarter century of holding the belts, supply and demand have been giving up their titles regularly to equities and currencies, the current tag-team champs," Cameron Hanover said.

In other Nymex trading, gasoline for August delivery fell 1.92 cents to $2.0375 a gallon and heating oil dropped 0.88 cent to $1.8926. Natural gas for August delivery slid 2.1 cents to $3.98 per 1,000 cubic feet.

In London, Brent prices fell 19 cents to $74.09 a barrel on the ICE Futures exchange.

[Associated Press; By PABLO GORONDI]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

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