Oil prices drop on weak US GDP data

Oil fell nearly two per cent on Friday as investors grew uneasy about the US economy's ability to grow significantly and the Congress' ability to act decisively to prevent a default on the nation's debt. The US government said the economy expanded at a meagre 1.3 per cent annual rate in the second quarter after barely growing at all in the first three months of the year. The data raised questions about the strength of oil demand in the months ahead. At the same time, the clock continues to tick as Congress argues about raising the government debt limit before Tuesday's deadline to avoid a default. Benchmark West Texas Intermediate crude for September delivery dropped $1.74 (Dh6.39) to settle at $95.70 per barrel on the New York Mercantile Exchange. In London, Brent crude fell 62 cents to settle at $116.74 per barrel on the ICE Futures exchange. Article continues below The US Commerce Department's report on GDP shows economic growth in the first six months was the weakest since the recession ended two years ago. High gas prices, job worries and a weak housing market have combined to prompt consumers to conserve money. Consumer spending increased 0.1 per cent this spring, which was the smallest gain in two years. And government spending fell for the third straight quarter. That worries traders because the US has the world's largest economy and slower growth could translate into waning demand for oil if businesses and consumers continue to cut back. "On a day like today where you have a disappointing GDP number, the anticipation is there will be jobs that will not be created by a certain date, there are offices that are not going to need to be cooled, heated, lighted," said Peter Beutel, energy analyst at Cameron Hanover. There already have been signs of declining demand. The US consumed 19.1 million barrels of liquid fuels per day in the first quarter, about 21.4 per cent of global oil demand of 89.1 million barrels a day, according to the Energy Department. The US total included 8.6 million barrels, or 361.2 million gallons, of petrol per day. Earlier this month, the agency estimated petrol consumption would rise to about nine million barrels per day as summer driving season started, but that's a less pronounced quarter-to-quarter increase than a year ago. In the four-week period ended July 22, petrol consumption averaged nearly 9.1 million barrels per day, down by 3.3 per cent from the same period last year. Demand for all oil products fell nearly three per cent. The decline in use was "unusually bad", Beutel said. "That's a really clear sign that demand for oil products is dropping fairly severely," he said. Oil prices fell 3.9 per cent this week and are up just 0.5 per cent for July after rising to $99.87 on July 22.