The rapid descent from its July 11 all-time high represents the commodity's steepest ever price drop in dollar terms.
'Tipping point' for slipping oil prices
A leading Wall Street bank predicts that oil may have passed a "tipping point" that will drive it below US$100 (Dh367) a barrel within six months, following price dives in the past two weeks since its peak at $147.27 on July 11. New York crude futures dipped below $126 a barrel yesterday after T Boone Pickens, a Texan billionaire oil investor, called on the US government to slash its dependence on foreign oil to bolster national security. Mr Pickens told a senate committee that America's $700 billion annual oil import bill was four times more costly than the war in Iraq, and was the largest transfer of wealth in US history.
"We are paying for a war against ourselves and we have got to stop it," Mr Pickens told the US senate committee on homeland security and governmental affairs. Oil prices fell as the dollar strengthened and traders in Asia awaited the release of US data that were expected to show a further build in fuel inventories. Analysts at Lehman Brothers, the US investment bank, saw prices falling further. "The deteriorating demand picture reinforces our belief that oil prices are approaching a tipping point," Lehman said in a report that saw prices moderating to $110 per barrel in the fourth quarter, and $90 in the first quarter of next year.
"High prices and slower economic growth have driven oil demand in the US lower. With oil prices above $80 for nearly a year and income growth weakening, demand elasticity has begun to show signs of life," the bank said, citing data showing that Americans were driving less, and doing so in smaller, more fuel-efficient cars. The report also predicted weaker oil demand growth in China and India next year in response to reductions in government fuel subsidies. Meanwhile, in the latest indication of global oil demand erosion, South Korean government figures showed consumption by Asia's third-largest oil importer falling 3.9 per cent in the first half of this year.
After their initial steep decline last week, crude prices rallied on Monday as approaching tropical storm Dolly appeared to threaten oil installations in the Gulf of Mexico that pump about 25 per cent of US crude output. A number of producers, including ExxonMobil, the world's biggest listed oil company, shut some offshore platforms and evacuated personnel as the storm strengthened into a hurricane. But by Tuesday, the threat of damage to oil facilities had receded, and oil prices resumed their downwards path. In his testimony, Mr Pickens urged American politicians to pass tax breaks to support his scheme to build wind farms, and predicted that the oil price would surpass $300 a barrel in 10 years unless the US achieved energy self-sufficiency. "We are more fragile today from a national security standpoint than we have been since World War II," he said. "I am saying do everything you can to get off foreign oil." Imports accounted for 65 per cent of the oil consumed in the US last year, up from 36 per cent in 1973, US government data indicate. Canada is America's largest foreign oil supplier, followed by Mexico and Saudi Arabia. Last year, the US purchased 177 million barrels of oil from Iraq, for which it would have paid about $12.8bn - equivalent to seven per cent of its annual spending on the Iraq war, according to Mr Pickens's estimate. Mr Pickens, 80, told the senate panel he was building the world's largest wind farm at Sweetwater, Texas. When completed, it would produce four gigawatts of electricity, equivalent to the power output of two-and-a-half nuclear plants, he said. The so-called "Pickens Plan" proposes boosting US wind power in order to free up natural gas to fuel more of the nation's cars. The legendary financier from America's biggest oil-producing state has spent millions of dollars on television and radio advertising campaigns for his plan. @Email:firstname.lastname@example.org * With agencies