Oil at 17-month low as gas demand falls

America hits the brakes

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NEW YORK (CNNMoney.com) -- Crude oil prices fell Tuesday after a report showed a decline in consumers' gasoline use last week, fanning fears of a drop in demand.

U.S. crude for December delivery ended the day down 49 cents to $62.73 a barrel. The close was the lowest since oil settled at $62.55 on May 16, 2007.

A weekly report on gas station credit card swipes from MasterCard showed that U.S. gas consumption fell 1% in the week ended Oct. 24, and was down 6.4% from the same week a year ago.

"Sentiment about gasoline demand is bearish, perhaps excessively bearish," said Antoine Halff, deputy head of research with brokerage firm Newedge USA.

Demand: Concern about falling demand has driven oil down more than 57% from a record high of $147.27 in July. Retail gas prices averaged $2.629 a gallon overnight Tuesday, according to a daily survey from motorist group AAA, down 36% from a record $4.114 a gallon in July.

In the U.S., the world's largest oil consumer, consumers have been cutting back on fuel use, according to several government reports.

American drivers reduced the number of miles they drove by 5.6%, or 15 billion miles, during the month of August compared to the same month last year, according to the Transportation Department. That was the largest monthly drop in miles traveled since the department began reporting data in 1942.

The Energy Department will report weekly supply numbers Wednesday, which analysts expect will show an increase in U.S. crude stockpiles - a sign that refineries may not need to purchase as much crude in the subsequent week.

Global stocks: But concerns about future demand abated somewhat Tuesday as the Dow Jones industrial average rebounded about 5.7%, keeping oil market losses in check.

Stocks in Hong Kong, Japan, Europe and London also saw broad advances as investors anticipated an unprecedented rate cut by the U.S. Federal Reserve when it meets Wednesday.

For the past several weeks, oil prices have been taking their lead from the global stock markets as commodity investors sought to gauge the depth of the current economic slump. Investors are worried that a protracted decline in the global economy could spell lower demand for petroleum-based fuel.

"[Oil] seems to be looking at the stock market as an indicator of where demand is going to be in the future," said Peter Beutel, oil analyst with Cameron Hanover.

OPEC: Plummeting oil prices have raised eyebrows at the Organization of Petroleum Exporting Countries. The oil cartel, whose members control about 40% of the world's oil production were deeply concerned that the high prices in July, followed by the current economic downturn may have permanently eroded demand for crude.

The organization held an emergency meeting last week to cut production in an attempt to hold back the decline in crude prices. But prices continued to fall as investors largely ignored a pledge to cut production by 1.5 million barrels a day.

At a conference in London, OPEC Secretary General Abdalla el-Badri hinted that the organization could meet again if needed, according to reports.

"That's something that we're likely to see at some point," said Beutel, but he added that a further OPEC supply cut may already be priced into the market.

Strait of Hormuz: Upward pressure also came from OPEC member, Iran, which established a military base on the Strait of Hormuz, a vital Middle Eastern waterway that carries about 20% of the world's oil, primarily to Asia, the United States and Western Europe, according to the Energy Department.

Oil shot up in July, partially due to fears that Iran could blockade or mine the strait if it came into conflict with Israel or the United States.