Oil drops below $78 a barrel as weak economic reports point to sluggish demand

Oil prices fall on economy worries

NEW YORK — Oil prices dropped on Tuesday following disappointing reports on consumer confidence and manufacturing.

Gas pump prices were unchanged from Monday, according to AAA, Wright Express and Oil Price Information Service. The national average of $2.742 for a gallon of unleaded regular is 2.3 cents higher than a week ago and 24.2 cents above the price a year ago.

The Conference Board’s Consumer Confidence Index for July fell from June levels and was lower than economists expected. The Richmond Federal Reserve’s regional report on manufacturing showed a slowdown as well.

Benchmark crude lost $1.48 to settle at $77.50 a barrel on the New York Mercantile Exchange.

Stocks extended a three-day rally with small gains. The Dow Jones Industrial Average closed about 12 points higher. The NASDAQ and the S&P 500 were slightly lower.

“In the absence of any clear sign that the economy is going to recover or have a double dip, oil prices have taken almost daily cues from stock markets,” said U.S. energy consultancy Cameron Hanover. “These have mostly followed economic indicators, but they have also followed individual earnings reports as insights into major companies, sectors or industries.”

The Energy Department’s Energy Information Administration issues its weekly report on petroleum inventories on Wednesday. Crude oil stocks are forecast to fall by 2.3 million barrels, while gasoline supplies are expected to grow by 1.1 million barrels, according to analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.

Although predictions of an active hurricane season have not materialized yet, occasional threats, like that from Tropical Storm Bonnie last week, have helped support prices. With the season lasting into the fall, concern about disruptions to oil and gas production in the Gulf of Mexico have not vanished.

“Forecasts remain for this year’s hurricane season to be unusually active,” said an energy report from Sucden Financial Research in London.

The price of natural gas has been inching up over the past 10 days. On Tuesday natural gas gained 6.3 cents to close at $4.625 per 1,000 cubic feet. Analysts expect more hurricanes will push prices up as production and supplies come under the gun.

“Every depression upgraded to a storm will bring in precautionary short-covering and precautionary evacuations — at least from BP’s rigs. After everything that has happened this summer, that company only needs to hear wind chimes in the Azores and things get buttoned down,” Cameron Hanover said. “Tropical activity from here through the end of September will determine a great deal in terms of prices in this market.”

In other Nymex trading, heating oil fell 4.32 cents to settle at $1.9994 a gallon and gasoline gave up 4.26 cents to settle at $2.0632 a gallon.

In London, Brent crude lost $1.37 to settle at $76.13 a barrel on the ICE Futures exchange.

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