Oil prices drift lower as market weighs impact of trillion-dollar Europe bailout

Oil prices fall slightly with attention on euro

NEW YORK — Oil prices seesawed Tuesday as investors continued to assess the impact of a $1-trillion-dollar bailout package in Europe.

Benchmark crude fell 43 cents to settle at $76.37 a barrel on the New York Mercantile Exchange. That’s more than $10 below the 18-month high of $87.15 reached last Monday. Oil dropped as low as $75.36 and rose as high as $77.68 during Tuesday’s session.

The debt crisis in Europe has undermined investor confidence in the euro, which hurts oil prices. Commodities priced in dollars, such as oil, become more expensive for investors holding euros as the dollar strengthens. On Tuesday, investors were concerned the huge loan program to aid Greece and other troubled countries could amount to just a stopgap measure.

The market could get some direction Wednesday, when the U.S. Energy Information Administration releases its weekly petroleum inventories report. Analysts expect supplies to expand by 1.7 million barrels, according to Platts, the energy information arm of McGraw-Hill.

Still, forecasts for the long-term direction of oil point upward.

BofA Merrill Lynch Global Research analysts said in a note to investors that the currency effect on oil prices may be limited and that crude will top $100 at some point next year.

The EIA raised its forecast for oil by about $2 from last month’s estimate. EIA now expects prices to average about $84 a barrel in the second half of the year, rising to $87 by the end of 2011. It predicted retail gas prices will average $2.94 per gallon during the driving season from April 1 to Sept. 30. The national average is currently $2.90.

EIA projects GDP will grow by 3 percent, 0.2 percent higher than the April forecast. EIA also forecast moderate growth in energy use over the next 25 years as Americans use more renewable energy and rely less on imported oil. It expects strong growth in the production of shale gas.

Meanwhile, the Organization of Petroleum Exporting Countries monthly report on oil demand released Tuesday predicted an increase in global demand this year. OPEC thinks demand will rise 1.1 percent this year to 85.38 million barrels a day. That’s 950,000 barrels a day above the 2009 level.

“The global economy is improving, but the challenges of sovereign debt in the developed countries, the ability of China to avoid overheating and persistently high unemployment levels need careful monitoring,” OPEC said.

In Washington, two Congressional panels held hearings on the Deepwater Horizon incident. More than 4 million gallons of oil have spewed from a well at the bottom of the Gulf of Mexico where the rig exploded and sank last month. BP, which operated the well, is still trying to cap it. Analysts say the oil spill is not affecting the price of oil or gasoline.

The recent drop in oil prices is starting to benefit motorists. The national average for a gallon of unleaded regular fell overnight by more than half a cent to $2.90, according to AAA, Wright Express and Oil Price Information Service. It’s down 0.4 cent from a week ago, but still 67.5 cents above a year ago.

In other Nymex trading in June contracts, heating oil rose 1.99 cents to settle at $2.1401 a gallon, and gasoline added 1.26 cents to settle at $2.1952 a gallon. Natural gas fell 3.9 cents to settle at $4.131 per 1,000 cubic feet.

In London, Brent crude rose 37 cents to close at $80.49 on the ICE futures exchange.

Associated Press writers Pablo Gorondi and Alex Kennedy contributed to this report.