Oil responds to supply and demand at last

Oil prices have continued to fall, dropping to a three-month low of $118 a barrel as traders react to news of rising supplies and relief that storms in the Gulf of Mexico may not damage US oil and gas facilities.  ┬á There had been fears that tropical storm Edouard could damage offshore drilling sites in the Gulf, which caused offshore operators such as Shell and Chevron to evacuate staff from some of their drilling platforms, but production now seems unlikely to be affected. ┬á┬á A Reuters survey also found that supplies from the oil producing nations of OPEC rose in July for the third consecutive month, mainly due to Saudi Arabia raising its output. ┬á┬á Weak US consumer spending figures released Monday also increased the likelihood that demand for fuel in the US could fall. ┬á┬á This news strengthens the view that slowing economic growth is affecting commodity markets, as it also coincided with a drop in metal and food prices. Precious metals and food prices have drifted lower in recent days with the belief that the global slowdown is hurting demand. ┬á┬á Platinum fell to a six-month low this week as falling car production hit demand for emission control devices, its largest market. Rubber, the major raw material for tires, hit a two-month low, while copper, lead and zinc have all seen prices fall in recent days. ┬á┬á It appears the markets are settling back down into a supply/demand relationship, after much recent criticism about the distortion caused by commodity speculation.┬á┬á Analysts said that many investors were now focusing more on the potential imbalances between supply and demand on the oil market, and were looking at moving cash from oil and putting it into other assets.   ┬á┬á┬á┬á*┬á┬á┬á┬á┬á┬á┬á┬á┬á *┬á┬á┬á┬á┬á┬á┬á┬á┬á *┬á┬á