Crude oil traded near a two-month low in New York on signs slowing U.S. demand may take pressure off fuel stockpiles and as energy companies prepare to return workers to the Gulf of Mexico as Tropical Storm Ernesto passes.

Oil fell below $70 a barrel yesterday after a report showed consumer confidence in the U.S., the world’s biggest oil user, dropped to a nine-month low. Prices also slid as Ernesto tracked northeast toward Florida and the Carolinas, away from the Gulf of Mexico where about quarter of U.S. oil production is based.

“Demand in the key consumer is slowing,” said Tobin Gorey, commodity analyst at Commonwealth Bank of Australia Ltd. in Sydney.” The demand story and pretty comfortable inventories have been in the market for a while” but were over-shadowed by hurricane risks and Iran, he said.

Crude oil for October delivery was at $69.80 a barrel, up 9 cents, in after-hours electronic trading on the New York Mercantile Exchange at 9:07 a.m. in Sydney. Prices today are barely changed from a year ago.

Yesterday, the contract fell 90 cents, or 1.3 percent, to $69.71 a barrel, the lowest close since June 20.

Americans were less confident in August than at any time in nine months. The Conference Board’s index of confidence dropped to 99.6 from 107.0 in July, the New York-based business group said yesterday. The decline was the biggest since last September. The U.S. consumes 25 percent of the world’s oil.

“We’re slowing down and are going to take others with us,” Bill O’Grady, an analyst with AG Edwards & Sons in St. Louis, said yesterday.

Storm Passes

Tropical Storm Ernesto was last week forecast to strengthen to a hurricane before crossing the Gulf of Mexico. The storm, with maximum sustained winds are almost 45 miles per hour (72 kilometers), is nearing the Florida Keys and Southern Florida, the National Hurricane Center said in a forecast at 5 p.m. in New York.

“It doesn’t look like there will be any storms heading for the Gulf in the short-term,” O’Grady said.

U.S. oil stockpiles held 330.4 million barrels on Aug. 23, 10 percent above the five-year average for the period.

An Energy Department report later today will probably show inventories declined by 1.5 million barrels last week as refiners increased production to meet the last of summer gasoline demand, according to a Bloomberg News analyst survey.

Gasoline stockpiles, 1.6 percent above average at 205.8 million barrels, probably fell by 600,000 barrels last week, based on the median estimate from the 15 analysts surveyed.

Iran

Oil rose through $70 for the first time this year in April after the nuclear research program of Iran, the world’s fourth- largest oil producer, was referred to the United Nations Security Council. The council has threatened Iran with economic sanctions if it does not halt its uranium enrichment by Aug. 31.

“There’s a bit of a reassessment going on,” said Commonwealth’s Gorey. “Not over what it would mean if Iran took its oil off the market, but whether it is actually going to happen.”

The Security Council is unlikely to impose sanctions, Iranian President Mahmoud Ahmadinejad said yesterday.

“Using nuclear energy is Iran’s right,” the president said at a news conference in Tehran. “And we want to use it according to international law.”

To contact the reporter on this story:
Gavin Evans in Wellington at gavinevans@bloomberg.net