US market reacts to oil price

Oil prices are now impacting on US consumer confidence. Picture / Reuters

NEW YORK - All eyes will be on oil prices as US markets begin the new week.

Oil fell more than a dollar at the end of last week after two widely watched reports signalled that soaring energy costs were buckling consumer confidence and curbing global fuel consumption.

The International Energy Agency said it was cutting its global oil demand growth forecast due to high prices, while the University of Michigan said in its survey of US sentiment that near-record petrol prices pushed consumer optimism to its lowest point since Hurricane Katrina.

"It's becoming increasingly clear that the price is having quite a strong effect on demand growth," said Lawrence Eagles, head of the IEA's Oil Industry and Markets Division.

US light crude CLc1 dropped US$1.28 to US$72.04 a barrel, slicing away some of this week's US$3-plus gains, while London Brent crude LCOc1 lost US$1.11 to US$72.32 ($114.56) a barrel.

Shares of Exxon, the world's largest publicly traded oil company, lost 1.4 per cent to US$62.56 and ranked as the heaviest weight on the S&P 500. Exxon was among the biggest contributors to the Dow industrials' decline.

The Dow Jones industrial average was down 65.15 points at 11,435.58. The Standard & Poor's 500 Index was down 8.16 points at 1297.76. The Nasdaq Composite Index was down 18.20 points at 2254.50.

The IEA report said high prices were affecting fuel use and cut its 2006 forecast for demand growth by 220,000 barrels per day (bpd) to 1.25 million bpd.

The agency also lowered the world's requirement for Opec oil by 200,000 bpd to 29.2 million bpd for the year.Eagles said the overall crude market remained tight, though concerns about strained fuel supplies ahead of the US peak summer driving season should ease as refiners crank up activity.

Meanwhile, the University of Michigan's closely watched sentiment survey slumped to 79.0 this month from April's final 87.4, far below the median Wall St forecast for a reading of 86.1 - stirring worries that Americans may curb discretionary spending.

Some analysts added that growing US inventories were also weighing on prices. The US Government reported on Thursday that fuel stockpiles jumped more than expected due in part to a surge in imports and an increase in refinery activity.

The price for US crude hit a record of US$75.35 in April, driven by tensions over Opec producer Iran's nuclear ambitions and the shut in of around a quarter of output from Nigeria.

Tension had eased in Nigeria following the release of three foreign oil workers who had been taken hostage, but it mounted again on Saturday with renewed threats of militant violence.

The Movement for the Emancipation of the Niger Delta said in an email to Reuters that it was conscious of the potential that an attack on the Nigeria Liquefied Natural Gas plant could hurt nearby communities. It said it would launch a warning raid on an oil facility beforehand.

- REUTERS