Oil settles just above $119
Crude prices hit 3-month low after Fed holds rates steady, sparking more demand concerns for oil.
NEW YORK (CNNMoney.com) -- Oil prices fell to near $119 a barrel Tuesday - the lowest settle price in more than three months - after the Federal Reserve held its key interest rate at 2%.
U.S. crude for September delivery fell $2.24 to $119.17 a barrel on the New York Mercantile Exchange. That marked oil's lowest close since May 2, when oil settled at $116.32
Crude traded as low as $118 a barrel Tuesday before rebounding slightly.
The Federal Reserve, in a move most observers expected, left the fed funds rate unchanged for the second straight meeting, citing the need to balance a weak economy with rising inflation.
Starting last year, the U.S. central bank engaged in a months-long rate-cutting campaign aimed at juicing the markets. It has recently halted the cuts as pressure from inflation mounted. One member of the Federal Open Markets Committee voted to raise rates Tuesday.
"The Fed's decision is just another example of the challenges that the U.S. economy is facing," said Rachel Ziemba, an oil analyst with RGE Monitor.
"With the trajectory of the U.S. and global economies, oil demand will continue to be negatively affected," she added.
Falling demand. Weekly reports from the Department of Energy have indicated demand for crude products is well below what it was a year ago.
Meanwhile the market has been talking about falling demand from Europe and Japan, as well as developing nations such as China, according to Jim Ritterbusch, president of energy consulting firm Ritterbusch and Associates in Galena, Ill.
"We're still responding to both anecdotal evidence and statistical evidence that demand is falling," Ritterbusch said.
Expensive gasoline. High fuel prices have weighed heavily on consumers in the U.S., the world's largest oil consumer.
A daily survey from motorist group AAA showed Tuesday that while average gas prices have fallen for 19 straight days to $3.871 a gallon, they're still more than $1 higher than a year ago. Gasoline prices hit a record high of $4.114 at the pump on July 16.
A recent CNN/Opinion Research poll found that 75% of respondents said prices at the pump are a "financial hardship," up from 60% in April.
"People are just figuring out ways to drive a little bit less," said Brian Youngberg, senior energy analyst with Edward Jones in St. Louis. "They're not taking that extra trip down to the corner grocery store."
Election. Responding to public outcry on high oil prices, Democratic presidential candidate Barack Obama laid out an energy plan Monday that would include releasing 70 million barrels of crude from the Strategic Petroleum Reserve and accepting a "limited amount" of new offshore drilling in the U.S.
Republican opponent John McCain has supported new drilling for several weeks, and was scheduled to tour the Fermi 2 nuclear plant outside of Detroit on Tuesday. Both candidates have pushed for the development of non-fossil fuels.
Edouard. Concerns about supply disruptions in the Gulf of Mexico dissipated as Tropical Storm Edouard failed to reach hurricane strength when it struck the Texas coast, and just grazed vital off-shore oil facilities near Galveston, Texas, according to reports.