Oil prices fall on weak retail sales

Oil prices fell Wednesday after the government reported slower retail sales and a drop in spending at the pump.

If Americans aren't shopping, they don't need to swing by the gas station for a fill-up quite as often.

Benchmark crude lost 70 cents Wednesday to finish at $82.62 per barrel. Brent crude, which is used to price international oil and to make gasoline in much of the U.S., fell a penny to end at $97.13.

The Commerce Department said Wednesday that retail spending slipped 0.2 percent in May, following an identical decline in April. Slow sales at gasoline stations helped push overall spending down. But even when the effect of volatile gasoline spending was excluded, retail spending rose just 0.1 percent, a disappointment to economists.

It's a sign that consumers have pulled back. If consumers stay home and shippers move fewer goods, they will burn less gasoline and diesel, and demand for crude to make the fuel will fall.

Meanwhile the Energy Department said crude supplies fell by 200,000 barrels last week, though they remain relatively high for this time of year. Gasoline supplies shrank by 1.7 million barrels, however, leaving stocks slightly below average.

Analysts expected an increase in gasoline supplies. The decline was surprising because U.S. gasoline demand has been weak. The supply report briefly pushed oil higher before it retreated to negative territory.

Jim Ritterbusch, an independent oil trader and analyst, said it is likely that exports of gasoline from the Gulf Coast to Latin America and other countries led to the drain in gasoline stocks, not any rebound in U.S. demand.

U.S. retail gasoline prices fell less than a penny to $3.539 per gallon overnight. That's 16 cents per gallon less than a year ago and 40 cents less than this year's high, set on April 6. Even though lower gasoline sales dragged down retail spending last month, economists think declining pump prices could help boost retail spending somewhat in months to come by giving drivers more money to spend on other things.

Oil prices fluctuated throughout the day because the oil market is skittish ahead of several upcoming events that could influence global supply and demand:

— On Thursday the Organization of Petroleum Exporting Countries will meet in Vienna. OPEC could decide to restrict production in an effort to reverse a decline in the price of crude. Oil has fallen 24 percent since late February.

— More U.S. economic data will be released this week, including initial jobless claims for the first week in June and industrial production in May.

— A Greek election Sunday could lead the country to abandon the euro. That has traders worried that the European financial crisis could worsen.

— Early next week leaders from six global powers will try to convince Iran to abandon its nuclear ambitions when the two sides meet in Moscow.

Iran's pursuit of nuclear technology has led the West to tighten sanctions against the country in hopes of depriving the country of revenue from oil sales. A European embargo of Iranian oil is set to take effect July 1.

Concerns over Iran's possible reaction to the new sanctions sent oil sharply higher early this year, but worries have dissipated since Iran has agreed to participate in talks. If the talks break down, worries over supply disruptions from the Middle East could return to the market and push prices higher, experts say.

"We have such a basket of risk, we're up, we're down, it's a trader's market," says Rich Ilczyszyn, founder of iiTrader.com.

In other trading, heating oil fell a penny to finish at $2.611 per gallon, wholesale gasoline rose less than a cent to end at $2.655 per gallon and natural gas fell 4.7 cents to finish at $2.185 per 1,000 cubic feet.

Jonathan Fahey can be reached at http://www.facebook.com/FaheyJonathan .