Crude oil falls on signs of economic weakness

The price of crude has declined for the first time in three days, after a report showed a sharp drop in orders for durable goods.

By mid-afternoon in New York, crude oil futures for October were down 0.3% at $106 per barrel.

The fall came as the Commerce Department revealed that durable goods orders decreased 7.3% in July, the biggest drop since August 2012. The magnitude of the drop in orders came as a surprise, with a survey conducted by Reuters before the release of the data forecasting a 4.0% decrease.

Durable goods are classified as being items expected to last for three years or more, which tend to be expensive items. With orders dropping so substantially in August, it paints a picture that businesses are downbeat about the outlook for the economy, being reluctant to invest in items for the future.

Durable goods can be volatile because of the nature of the items involved, where demand can be erratic, especially within the transportation area, but even excluding transportation, orders dropped 0.6%. This does not bode well for future crude oil demand

The Crude price was also pressured by news from Libya that it had resumed exports from the port of Brega, one of four ports closed after force majeure was announced on 18 August. Libya has the biggest reserves of oil in Africa, so a resumption in Libyan exports is fundamentally bearish for oil prices, all other things being equal.

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