The American Petroleum Institute said that the US inventories dropped by 6.8 million barrels last week. Some investors will be monitoring for inventory data from the Energy Department’s Energy Information Administration for more signs crude demand may be growing. Economic analysts are expecting the EIA numbers to fall 2.2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The API numbers are reported by refiners voluntarily while the EIA figures are mandatory.

The New York-based Conference Board honestly said its consumer confidence index dropped in June after gaining it for the last three months.

Senior commodity strategist “Mark Pervan” said that the oil right now is very short-term news to sensitive market. “The inventory data is giving people a reason to buy today.”

He also said “Oil prices will likely go down between 10 percent and 15 percent during the third quarter as the global economy remains sluggish and the dollar strengthens. Prices will probably then rebound in the fourth quarter by about 20 percent.”

“I sense this quarter will be a breather,” Pervan said. “It won’t be a major pullback, but it will be a pullback.”

Oil increases 41 percent in the second quarter and 57 percent in the first half on investor optimism that the worst of a severe US recession was over. Commodities such as oil also rallied on a weaker US dollar, as investors sought a side step against inflation.

In other Nymex trading, gasoline for August delivery was steady at $1.90 a gallon and heating oil held at $1.72. Natural gas for August delivery jumped 4.1 cents to $3.88 per 1,000 cubic feet.

The decline passed over most of the strong gains made in the previous day’s session, but traders said expectations of an important production cut by OPEC would help keep a floor under prices.

By mid-afternoon in Europe, light, sweet crude for January delivery was down $3.42 to $44.56 a barrel in electronic trading on the New York Mercantile Exchange. Overnight, the contract surged $4.46, or 10 percent, to settle at $47.98.

In London, January Brent crude fell $2.69 to $44.70 a barrel on the ICE Futures exchange.

Friday’s data showing that US retail sales fell 1.8 percent in November, the fifth monthly slide in a row, and that wholesale prices dropped 2.2 percent last month escalated concerns about a deepening recession.

While falling prices are appealing to consumers, a prolonged, widespread decline would do serious economic damage, dragging down incomes, cutting home prices even further and shrinking corporate profits.

David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said comments by Saudi Arabia’s Oil Minister Ali al-Naimi on Thursday that November production by the world’s largest exporter was in line with OPEC’s recently lowered targets indicated it was serious about output cuts.

“There are expectations that OPEC will move to tighten supplies,” Moore said. “Oil prices softened this morning but well within the range we saw last night (despite) worries about falling consumption because of economic weakness.”

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has signaled it plans to reduce output quotas at a meeting Dec. 17 in Algeria.

Many analysts expect a production cut of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year.

But they say the success of any production cuts in stabilizing oil price will depend on how closely OPEC members comply. OPEC’s overall November production was well above quotas agreed to by member states, according to Platts, the energy information arm of McGraw-Hill Cos.

Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore, said oil prices were adjusting Friday to what was seen as an “overdone” rally. “The biggest factor is still the expectation that OPEC will make substantial production cut next week, with coordination from Russia,” he said.

Russia has said it plans to coordinate production levels with other non-OPEC producers. On Thursday, Russian President Dmitry Medvedev suggested that Russia is ready to work with OPEC.

“Both the Russian government and Russian producers have a common interest in higher prices and this is increasing the chance of a coordinated effort to curb supplies,” said Olivier Jakob of Petromatrix in Switzerland.

Oil prices have fallen 70 percent since peaking at $147.27 in July. After hitting $40.50 a barrel last week, some oil traders believe that if the market has not bottomed out, it is close to doing so.

In other Nymex trading, gasoline futures fell 6.38 cents to $1.0148 a gallon. Heating oil dipped 6 cents to $1.4466 a gallon and natural gas for January delivery lost 10.8 cents to $5.49 per 1,000 cubic feet.

This after independent industry participant Seaoil Philippines, Inc., said it has cut prices by P2 per liter for diesel, and P1 for gasoline and kerosene as of 2 p.m. Tuesday, bringing its diesel price to P35.98/liter, unleaded gasoline to P38.50 and premium gasoline to P40.

Eastern Petroleum Corp. Chairman Fernando L. Martinez said they will be matching the lower prices in Eastern Petroleum outlets near Seaoil service stations.

Other oil firms have not advised of price adjustments.

“We welcome the recent rollback of Seaoil. We expect other oil companies will soon follow suit and we expect more to come before the year ends. The DoE (Department of Energy) will continue to monitor and ensure that the local pump prices promptly reflect the price movements of oil in the international market,” Energy Secretary Angelo T. Reyes said in a statement.

“We are now seeing a fall in world oil prices as countries around the world is feeling the effects of the global credit crunch. This has resulted in the dampening of demand for oil which is further putting downward pressure on prices,” he added.

The benchmark Dubai crude average as of Monday was $51 per barrel from the October price of $67. Imported diesel went down to $75 from $89, while imported gasoline was at $50 per barrel from last month’s $80.

The average price cut for November is P3/liter for diesel and P4/liter for gasoline. Price reductions have totaled P21.50 and P20.50 per liter for diesel and gasoline, respectively.

Oil companies have been cutting fuel prices since July after oil prices, which reached a peak of $140 per barrel for Dubai crude, have drastically gone down due to the slowdown in the global economy.

The Energy department said with low gasoline prices, the government will maintain the 3% oil tariff for December.

The oil tariff was slowly phased out until crude prices went above $103 per barrel.

The scheme was institutionalized by the Palace early this year to cushion the impact on domestic pump prices.

Meanwhile Executive Secretary Eduardo R. Ermita in a radio interview Tuesday said oil firms should be compelled to lower their prices as the Christmas season approaches.

He added he has directed the Energy department and the National Economic and Development Authority to coordinate and monitor pump prices.

Courtesy of GMA News