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Oil drops 11 percent in 2nd quarter

NEW YORK (AP) — After rising to become an obstacle to economic growth, oil prices went backward in the second quarter.

The benchmark price in the U.S. dropped nearly 16 percent in May and June, and closed the quarter with an 11 percent decline. Having settled at $95.42 per barrel Thursday on the New York Mercantile Exchange, oil is back where it was in late February. And at $3.54 per gallon, the national average for gas is almost 7 cents lower than when the quarter started.

But there were worried economists and frustrated drivers along the way. Oil rose 7 percent in April and peaked near $115 per barrel on May 2. Gas hit $3.98 per gallon days later.

High fuel prices were blamed for everything from lagging consumer confidence to lower retail sales. Consumers are still feeling the effects, but "the bubble has popped," analyst and trader Stephen Schork said. "(Oil prices) were going like gangbusters in April. Then we gave it all back really fast."

The turnaround came as consumers balked at soaring gasoline prices and some of the world's major oil importers released emergency supplies. There were also echoes of last year's second quarter: A financial crisis in Europe and questions about the global economic recovery pulled prices lower.

Still, the 28-nation International Energy Agency, which includes the U.S., remained worried enough about oil's impact on the global recovery that it pledged last week to release 60 million barrels of crude and refined products onto the market in an effort to prevent another price spike.

The second-quarter decline surprised many investors and there's little consensus on where prices go from here. Most analysts do expect prices to be especially volatile in the second half of the year. There were 37 days in the first six months where prices either rose or fell by 2 percent or more.

The U.S. Department of Energy expects oil to rise from an average of about $98.55 in the first half to $101.91 per barrel by the end of the year. Some analysts, however, expect prices to be lower than that, maybe falling to $80 per barrel by New Year's Eve.

Oil will move depending on the answers to four major questions, experts say:

— How much oil will China consume? China's oil appetite is expected to drive world demand for years. But there are signs of a pull back. Platts, the energy information arm of McGraw-Hill, said earlier in June that China's oil consumption grew 8 percent in May. That was the second month of single-digit growth after consumption had expanded 10 percent or more in each of the previous six months. If China's consumption lags estimates, expect oil prices to tumble.

— Will non-OPEC countries release more oil? Oil plunged last week after the IEA announced the release of oil. The group said it should more than make up for the loss of Libya's 1.5 million barrels of daily exports. The release is only a temporary fix, however, and analysts say world supplies will continue to tighten — pushing prices higher — unless IEA loosens the spigot again.

— Will there be another Arab Spring? Tensions have died down in North Africa and the Middle East since the spring. But any new flare-up in the region will push oil higher. Turmoil in Yemen, for example, has left President Ali Abdullah Saleh badly injured and clinging to power. A regime change there would destabilize a country that sits along one of the world's crucial oil shipping lanes.

— Will Greece's financial troubles continue to hurt the European economy? Greece's approval of financial reforms this week cleared the way for more international aid. But the country still must prove in September that it has implemented new austerity measures to be eligible for more bailout money. Failure to do so could further destabilize the euro and push oil lower. Oil, which is priced in dollars, tends to fall as the dollar rises versus other major currencies.

The direction of oil prices also depends on expectations for world economic growth. Economists have forecast global oil demand at a record 89 million barrels per day this year. If the global economy slows and demand forecasts drop, oil prices would keep sliding in the third and fourth quarter.

"I'm always concerned that demand will come in significantly lower than what they're expecting for the second half of the year," said Michael Lynch, president of Strategic Energy & Economic Research. "Everyone's buying more fuel-efficient cars. Eventually that's going to make a difference."

There are also random events, like hurricanes in the Gulf of Mexico, which could affect prices.

In other Nymex trading Thursday, natural gas prices rose after the government reported that U.S. supplies grew less than expected last week. The Energy Information Administration said that storage levels rose by 78 billion cubic feet. The natural gas contract for August delivery gained 5.9 cents to settle at $4.374 per 1,000 cubic feet. For the quarter, natural gas prices were little changed.

Heating oil for July delivery added 1.25 cents to settle at $2.9327 per gallon and gasoline futures for July added 2.19 cents to settle at $3.0316 per gallon. Both contracts expire on Thursday.

In London, Brent crude gained 8 cents to settle at $112.48 on the ICE Futures Exchange.