Oil slips on global demand woes

NEW YORK (CNNMoney.com) -- Oil prices fell below $73 a barrel Tuesday, after downbeat overseas manufacturing data raised concerns that global fuel demand will remain low.

What prices are doing: Crude oil for July delivery fell $1.39, or nearly 2%, to settle at $72.58 a barrel Tuesday after dipping as low as $71.64.

• Email
• Print
• Comment

Click the chart to view other commodity prices.

Oil traded on Monday, but there was no settlement price because of the U.S. Memorial Day holiday.

The national average price for a gallon of regular unleaded gasoline fell to $2.727, down from the previous day's price of $2.732, according to motorist group AAA. That's the 26th straight day of declines.

What's driving prices: Reports in both Asia and Europe sent markets lower on Tuesday.

A reading on Chinese factory activity fell last month, according to data from the China Federation of Logistics and Purchasing. The purchasing managers' index fell to 53.9 in May from 55.7 in April. While readings above 50 indicate expansion, the decline indicates the pace of growth has slowed.

"That dip ... seems to suggest that perhaps China is getting impacted by the economic turmoil in Europe," said Phil Flynn, senior market analyst at PFG Best, in a research note.

An adviser to the Chinese central bank also told the Financial Times that the country's housing market problems are even more severe than those in the U.S., Flynn noted.

Europe's manufacturing growth also slowed in May, missing expectations and standing in sharp contrast to April's 46-month high. That report also sent the euro to a four-year low, which further pressured the oil market.

Crude prices tend to fall when the dollar rises. Commodities are priced in U.S. dollars around the world, so a higher greenback makes oil more expensive for foreign investors.

"My long-term outlook is still very bearish," Flynn said.

Meanwhile, a report from the Institute for Supply Management (ISM) showed that U.S. manufacturing growth slowed in May.

The ISM index fell to 59.7 from 60.4 in April, but this was slightly higher than the 59.4 reading economists surveyed by Briefing.com were expecting.

BP (BP) said Tuesday it is making another attempt at containing the oil spill in the Gulf Coast off Louisiana. The Deepwater Horizon spill, the worst in U.S. history, is now in its seventh week. The latest effort, forcing mud into the leaking well, failed late last week. The spill has cost an estimated $930 million so far.