Business

Energy prices slump

Energy prices slumped Tuesday on a Labor Department report that suggested consumer spending, a major economic driver, may be depressed for some time as companies cut back.

Benchmark crude for September delivery fell $1.15 to settle at $69.45 a barrel on the New York Mercantile Exchange. It was the fourth straight day of declines and the first time this month that the price for crude dipped below $69.

The national average for retail gas fell for the first time in three weeks.

Oil prices have ended the week higher for five straight weeks, a period that coincides with earnings reports from U.S. companies. The results appeared surprisingly healthy, which gave energy prices a boost on the belief that the recession has loosened its grip.

While that may be true, data from the Labor Department Tuesday again showed that company profits were in many cases buoyed by less spending on employee pay.

The Labor Department reported that productivity, the amount of output per hour of work, rose at an annual rate of 6.4 percent in the April-June quarter.

In normal economic times companies might pay more for workers and increase production. Yet companies during the recession have instead frozen hiring and cut hours to prop up profits.

If workers are not getting the hours they need, the pullback on spending for everything from gasoline to products made from petroleum, will likely remain depressed.

That has already happened this year.

The Energy Information Administration in its short-term energy outlook Tuesday said U.S. consumption of liquid fuels will fall by 4.1 percent this year. The falloff in gasoline sales has been tempered somewhat because it's become so cheap compared with past years.

The average pump price fell two-tenths of a penny overnight to $2.643, according to auto club AAA, Wright Express and Oil Price Information Service. That's about 8 cents higher than last week but around $1.17 cheaper than at this point last year.

In fact, you'd have to go back as far as 2005 to find gasoline so cheap at this time of year.

Pump prices have followed crude upward for several weeks, however.

Crude prices rose early in the day on reports from China that the nation's exports, retail sales and factory output improved in July, and the country imported a record 4.6 million barrels of fuel a day last month.

The market reversed course when the Labor Department released its report and oil prices fell 2 percent.

The monthly forecast by the Organization of the Petroleum Exporting Countries also may have helped pushed energy prices down. OPEC -- responsible for about a third of the world's crude production -- said it expected demand to fall by 1.65 million barrels a day this year, compared with last year, before rising in 2010.

The Federal Reserve on Tuesday begins a two-day meeting that could shed more light on the U.S. economy. An interest-rate hike is highly unlikely, but people want to hear what the Fed will say about the state of the economy, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"By and large, we're just taking a little of this economic optimism out of the market right now and responding to the possibility that we're going to see a more stable currency environment going forward," he said.

The falling dollar has helped push crude prices up because oil is priced in the U.S. currency.

The EIA predicted Tuesday that gas prices will average around $2.34 per gallon in 2009.

In other Nymex trading, gasoline for September delivery gained 1.38 cents to settle at $2.9422 a gallon and heating oil fell 1.59 cents to settle at $1.9117. Natural gas for September delivery fell 10 cents to settle at $3.541 per 1,000 cubic feet.

In London, Brent prices fell $1.04 to settle at $72.46 a barrel on the ICE Futures exchange.

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Associated Press Writers Alex Kennedy in Singapore, George Jahn in Vienna, Joe McDonald in Beijing and Martin Crutsinger in Washington contributed to this report.

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