Oil prices fell for a third straight day before the U.S. Federal Reserve meets to discuss monetary policy, which for months has helped to drive oil prices higher.
Benchmark crude for October delivery lost more than 3 percent, or $2.53 to $69.51 a barrel on the New York Mercantile Exchange.
With the October contract set to expire on Tuesday, traders were focusing more on the November contract, which fell 4 percent to $69.60.
Natural gas futures, which have soared throughout the month, fell sharply, as did most other fuels.
Energy consumption in the North America and Europe has been crimped by recession, leaving China as the one country that continued to consume oil, gasoline and diesel in large quantities. That pace, at least over the summer, appeared to slow, according to a report released Monday.
Chinese oil demand slid 5.4 percent in August from July, the first month-to-month drop since March, according to Platts, the energy information arm of McGraw-Hill Cos., as the world’s second largest oil consumer reined in oil imports and crude throughput rates at its domestic refineries.
“August seems to have brought a reality check for refiners in China,” Vandana Hari, Asia news director at Platts, said in a statement. “Domestic fuel demand has clearly been lagging their high processing rates, and storage space is finite.”
Hari said the correction could be short lived as the government’s new domestic oil pricing policy incentivizes high refining volumes.
Another key market driver is the dollar, which rose Monday ahead of a big week in global economic matters, said PFGBest analyst Phil Flynn.
The G-20 meets in Pittsburgh this week to try to assess what went wrong with the global economy and try to fix it, and the Fed gathers to decide whether or not it’s time to remove some of the props that have been lifting the global markets, Flynn said.
A weak dollar attracts more money to oil markets because crude is priced in the U.S. currency. There are also some concerns that if some of the economic supports are removed, demand for energy may dip in the near term.
The recession has already sapped American fuel consumption, and U.S. oil stockpiles are 14 percent larger than last year even as recent data suggests the economy is clawing out of recession.
The Energy Information Administration said Wednesday that the country also is sitting on a sea of distillate fuels including heating oil, with stockpiles approaching a 27-year high.
The average price for a gallon of regular gasoline held steady overnight at $2.551, according to auto club AAA, Wright Express and Oil Price Information Service. That’s 7.5 cents more than a month ago, but nearly $1.21 less than at this time last year.
In other Nymex trading, gasoline for October delivery slipped 7.4 cents to $1.7580 a gallon, and heating oil fell 6.75 cents to $1.7604 a gallon. Natural gas fell 6 cents to $3.718 per 1,000 cubic feet.
In London, Brent crude fell $2.69 to $68.63 on the ICE Futures exchange.
Associated Press writers Alex Kennedy in Jakarta and George Jahn in Vienna contributed to this report.
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