Falling oil prices offer relief

NEW YORK — Oil traders sent crude prices tumbling as low as $118 a barrel Tuesday on the growing belief that a U.S. economic slowdown and high energy costs are curbing consumer demand for gasoline and other petroleum products.

Crude oil finished the day just above $119 a barrel — its lowest settlement price since early May.

Crude's decline is giving Americans more relief at the pump. A gallon of regular gasoline on average fell another penny overnight to $3.871, according to auto club AAA, the Oil Price Information Service and Wright Express. Gas prices have fallen four straight weeks for the first time since December; prices are off 5.9 percent from their July high as U.S. motorists cut back on their driving to save money.

A day after plunging as much as $5 a barrel in a dramatic sell-off, crude continued its downward trend. Gasoline and heating oil prices also fell, while natural gas ended unchanged after Monday's steep drop.

Light, sweet crude for September delivery fell $2.24 to settle at $119.17 a barrel on the New York Mercantile Exchange, the lowest close since May 2. During trading, the contract dipped to $118 — nearly $30 below the trading high of $147.27 reached July 11.

"The market psychology has finally shifted," said Stephen Schork, an analyst and trader in Villanova, Pa., adding that "$4-a-gallon gasoline has clearly killed demand."

Some analysts say oil has the potential to jump back up.

There are many factors that could keep oil from descending further, said Mike Fitzpatrick, vice president of energy and risk management at MF Global LLC. Those include political tensions in Nigeria and the Middle East, the potential for a big hurricane along the Gulf Coast, and global demand that is still growing — just not at the same pace that it had been.

"Even if it seems as though China's economic demand run has slowed some, those changes at the margins still make them a huge consumer of crude products," Fitzpatrick said.

Still, the Federal Reserve, which issued an economic assessment statement along with its decision to keep interest rates stable, said that with tight credit and the housing contraction, "elevated energy prices are likely to weigh on economic growth over the next few quarters."