Oil drops below $68

[June 08, 2009]  VIENNA (AP) -- Oil prices dropped below $68 Monday as a rally that has roughly doubled the price of crude in four months lost some steam in the face of economic reality.

Crude prices have risen in tandem with stocks as gloom about the global economy eases. But there is growing sentiment that the oil market may have overreached.

Benchmark crude for July delivery was down 85 cents to fetch $67.59 a barrel by noon in European electronic trading on the New York Mercantile Exchange. On Friday, it settled down 37 cents at $68.44 after jumping as high as $70.32, the highest since October.

"I don't see the rally that we've had over the last couple of months as being sustainable," said John Vautrain, energy analyst at consultancy Purvin & Gertz in Singapore. "Inventories are still growing and OPEC production cuts haven't been big enough to offset that," he said. "The major economies are still weak and we are still losing demand."

Oil's brief jump over $70 came after a U.S. Labor Department reported Friday that employers cut 345,000 jobs in May, the fewest since September, even as the unemployment rate rose to 9.4 percent in May, a 25-year high.

But some analysts have been quick to jump on the crude rally bandwagon, with Goldman Sachs last week predicting that oil would reach $85 by the end of the year.

Royal Dutch Shell Chief Executive Jeroen van der Veer warned Monday that oil prices would spike in the future without continued investment to meet demand once the global economy recovers -- and as the world's population grows to a projected 9 billion by 2050.

The drop in oil prices after last year's surge to $150 a barrel has delayed exploration and refinery projects.

"The oil and gas industry cannot supply all this additional demand ... this means the next price spike is in the making," he told more than 1,000 delegates at the Asia Oil and Gas Conference in Kuala Lumpur on Monday.

In other Nymex trading, gasoline and heating oil for July delivery were down more than 2 cents at $1.93 and $1.75.

Natural gas for July delivery was off more than 6 cents at $3.81 per 1,000 cubic feet, reflecting continued weak demand -- a trend that Vienna's JBC Energy suggested would continue in light of the U.S. Energy Department's Energy Information Administration data.

"Natural gas stocks are now at a whopping 26.3 percent above the five-year average, which will likely maintain pressure on prices in the immediate future," said JBC's Energy Market Report.

In London, Brent prices lost $1 to sell at $67.34 a barrel on the ICE Futures exchange.

[Associated Press; By GEORGE JAHN]

Associated Press business writer Stephen Wright contributed to this report from Bangkok

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.