NEW YORK – Oil continued to drop Tuesday on mixed economic news and the possibility that Saudi Arabia and other OPEC countries will step up production.
Benchmark crude for March delivery lost $1.68 to settle at $86.19 per barrel on the New York Mercantile Exchange. Oil hasn't been below $87 since Dec.1. It's fallen more than 4 percent since Thursday, when it was approaching $92 a barrel. About half of the drop happened in the last two days.
One of the main reasons for the decline this week is comments on Monday by the Saudi oil minister, which many analysts and investors took to mean that Saudi Arabia, the world's biggest oil producer, thought oil had gotten too expensive and could threaten global economic growth. He seemed to imply that the Saudis and other members of the Organization of the Petroleum Exporting Countries could raise production to bring down the price of oil.
Goldman Sachs analysts think it's possible that OPEC has already stepped up production. They say global demand increased in December, but oil supplies did not appear to decline at the same pace.
"It would suggest that OPEC has started to bring its spare capacity back to the market earlier than we anticipated," Goldman Sachs wrote in a note to investors.
The Energy Department releases its weekly report on U.S. crude oil supplies on Wednesday. Analysts expect inventories to increase by 1.7 million barrels, according to Platts, the energy information arm of McGraw-Hill Cos.
They also expect the report to show that refineries operated at a slower rate than the week before. "The reduced demand for crude oil that comes with refinery maintenance also has played a role in pulling prices back recently," energy consultants Cameron Hanover said.
Another reason for the drop in oil prices may be concern about the impact of energy prices on the economy. "Now that the economy seems to be on more solid footing, high food and oil prices are starting to loom as the greatest potential roadblocks to prosperity," Cameron Hanover said.
The economic news was mixed on Tuesday. While the Conference Board's Consumer Confidence index hit an eight-month high, it was still far below levels that indicate a healthy consumer outlook. And the latest data on home prices shows them falling in eight major markets to the lowest level since the housing bubble burst in 2007.
The dollar strengthened. Since oil and other commodities are priced in dollars, a stronger dollar makes them less appealing to buyers with foreign currencies and tends to lower prices.
At the gas pump, the national average for a gallon of regular remained at $3.11. That's 7 cents more than a month ago and 30 cents higher than a year ago. Gas prices across the country range from $2.82 to $3.69 gallon.
In other trading on the Nymex, heating oil gave up 2.65 cents to settle at $2.5966 a gallon, gasoline futures lost 6.73 cents to settle at $2.3706 a gallon and natural gas for March delivery fell 10.8 cents to settle at $4.490 per 1,000 cubic feet.
In London, Brent crude dropped $1.36 to settle at $95.25 per barrel on the ICE Futures exchange.