Crude oil, other commodities priceskeep dropping

By Pablo Gorondi, Associated Press
Updated 20m ago |

Oil prices continued falling Thursday on expectations that global oil demand growth will slow this year, particularly in the U.S.

Stocks fell Thursday and other commodities continued to slide after a report from the International Energy Agency said demand for oil would be lower than previously expected.

Silver dropped more than 6%, extending a deep slide from $48.60 at the end of April.

Oil and gas futures kept sliding after a steep drop Wednesday, when the Energy Information Administration said U.S. gasoline demand dropped 2.4% last week, largest drop in seven consecutive weeks of declines, while oil supplies grew last week by 3.8 million barrels, more than twice as much as what analysts expected.

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On Thursday, the Paris-based IEA piled on, saying world demand for oil would be less than expected due to persistently high prices and lower expectations of economic growth in advanced economies.

The IEA now expects global oil demand to reach 89.2 million barrels a day in 2011 — a rise of 1.3 million barrels a day over 2010 but 190,000 barrels a day less than last month's forecast.

Oil futures prices

Crude oil, dollars per barrel, five trading days.
Gasoline at $4 a gallon "is likely to yield an anemic U.S. driving season," the IEA said in its monthly oil market report. "This is the main change to our demand forecast — a weaker 2011 profile in North America."

Benchmark crude for June delivery was down $2.36 to $95.85 a barrel in ear;y electronic trading on the New York Mercantile Exchange. The contract dropped $5.67 to settle at $98.21 on Wednesday.

Later Thursday, in volatile trading, oil trimmed some of that loss, rebounding to around $97 a barrel.

Markets also expect U.S. energy demand to face headwinds from the possible end of an aggressive monetary stimulus.

The second round of a Federal Reserve program of buying Treasury bonds, known as quantitative easing, has helped boost the money supply and weaken the dollar, making commodities such as oil cheaper for investors with other currencies and more expensive in dollars. A weaker dollar makes oil prices rise, because oil is traded in dollars.

The bond buying program is scheduled to end next month, and traders are struggling to gauge the impact on crude prices.

"The major policy that has shaped oil prices is winding down," Cameron Hanover said in a report. "As long as the Fed does not come up with a third round of quantitative easing, the major reason for oil price strength will be gone."

Oil prices have gyrated sharply since touching a 30-month high at almost $115 May 2.

"The world economy is clearly slowing," said Capital Economics in a report. "Rather than being in the early stages of a super-cycle, the prices of many industrial and agricultural commodities seem more likely to be forming bubbles which are set to burst."

Other commodities also fell.

Alex Kennedy in Singapore contributed to this report.

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