Consumer sentiment has gotten worse this month, suggesting that oil demand was unlikely to increase. (image: Nicholas Whitaker for HeatingOil.com)

Oil prices dropped for the third day in a row on Friday as investors remained concerned about a possible slowdown in the US economic recovery. Oil demand tends to rise as the economy expands, so slower economic growth means slower growth in oil demand, and that weighs on prices. On Friday a report from Thomson Reuters/University of Michigan found that consumer sentiment had fallen so far in July, providing further evidence that the US economy is cooling off. The consumer sentiment report came on the heels of data that showed US manufacturing activity had declined, bolstering the case for a cautious economic outlook.

Today’s average retail heating oil price in the Northeast is 1 cent lower than Friday’s average price.

Heating oil prices fell again on Thursday on worries that oil demand remained weak. (image: Nicholas Whitaker for HeatingOil.com)

Demand concerns kept heating oil prices down on Thursday, marking the third day in a row of declining heating oil prices. This week’s inventory reports and a host of economic data showed that oil demand in the US remains weak and cast doubts on the certainty of brisk economic recovery. Yesterday’s bright spots in economic news—a drop in new jobless claims and an increase in durable goods orders—were overwhelmed by the surprisingly large build in crude oil inventories reported on Wednesday and the Federal Reserve’s statement that economic recovery would be a long and slow process. Without economic growth, oil demand will stay flat, so data showing a weak economy tends to drive down oil prices.

Today’s average retail heating oil price in the Northeast is 1 cent lower than Thursday’s average price.

A volatile day ended with a drop in heating oil prices. (image: Nicholas Whitaker for HeatingOil.com)

Manufacturing data from around the globe buffeted the oil markets on Tuesday, but in the end the price of oil took a substantial fall. China and Europe reported lackluster growth in manufacturing activity, which indicates poor prospects for growth in oil demand in those areas. The manufacturing sector in the US expanded more than expected in May, and while that points to more oil demand in the world’s largest energy consumer, which supports higher oil prices, the news also had an effect on currency markets that pressured oil prices to fall. As the US economy shows signs of recovery, the dollar becomes stronger. Since crude oil and heating oil futures are priced in dollars, a strong dollar makes those commodities more expensive—and therefore less appealing as investments—for traders who hold other currencies.

Today’s average retail heating oil price in the Northeast is 4 cents lower than Tuesday’s average price.

Heating oil prices fell due to Europe's debt crisis. (image: Nicholas Whitaker for HeatingOil.com)

Europe’s debt crisis continued to weigh on oil prices on Thursday, affecting both the fundamentals and oil’s appeal as a financial investment. Regarding oil fundamentals, the debt that threatens to bring down the economies of Greece, Spain, and Portugal will also constrain economic recovery in Europe. Slower economic recovery will keep Europe’s demand for oil at its current depressed level, and that has pressured oil prices to fall. On the financial side, Europe’s debt has weakened the euro, giving the dollar a boost relative to the European currency. Since crude oil futures and heating oil futures are priced in dollars, a stronger dollar makes them more expensive for traders who hold other currencies, diminishing their appeal.

Today’s average retail heating oil price in the Northeast is 2 cents lower than Thursday’s average price.

(image: patentdocs.typepad.com and Nicholas Whitaker via heatingoil.com)

The Commerce Department issued its last estimate on fourth-quarter GDP growth on Friday, and revised growth down from 5.9 percent to 5.6 percent. That estimate of slower growth signaled that economic growth, and the growing demand for oil that would come with it, was proceeding at a slower pace than traders and analysts had thought. The revised GDP figures especially affected the price of crude oil; weekly inventory reports had shown large builds in crude supplies, so the GDP numbers reinforced the belief that there was oversupply in the crude oil market. The price of heating oil stayed even, though, helped by the falling inventories of distillates (which includes heating oil and diesel) reported by the EIA and the API earlier in the week.

Today’s average retail heating oil price in the Northeast is unchanged from Friday’s average price.

(image: heatusa.com and zimbio.com)

Declining inventories of distillates, which include heating oil and diesel, and gasoline were no match for the 7-million-barrel buildup of crude oil supplies in Thursday’s oil markets, and crude and heating oil prices dropped. The mixed inventory reports point to low refinery activity; the crude oil is there, but it’s not being refined into heating oil and gasoline, so inventories of finished fuel products declined. Demand for oil in the US remains weak, despite expectations for demand recovery as the economy improves.

Today’s average retail heating oil price in the Northeast is 3 cents lower than Wednesday’s average price.