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Oil Prices Fall As Supply Worries Ease

Posted on: Tuesday, 25 September 2007, 09:00 CDT

By GEORGE JAHN

VIENNA, Austria - Oil prices extended their decline Tuesday after concerns eased about supply disruption in the Gulf of Mexico. But analysts said expectations of tighter supplies ahead still may limit the decline.

Light, sweet crude for November delivery on the New York Mercantile Exchange fell 76 cents to $80.19 a barrel by midday in electronic trading by midday in Europe.

The decline was a continuation of the trend in the previous session, when the contract fell 67 cents a barrel, said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney.

In London, November Brent crude lost 50 cents to trade at $78.41 a barrel on the ICE Futures exchange.

"The U.S. production in the Gulf of Mexico is coming back on-stream so that's taken some of the heat out of the oil price," Moore said.

A tropical depression developing in the Gulf helped push crude oil futures to record levels above $83 a barrel last week as oil companies evacuated oil platforms and shut in production.

Vienna's PVM Oil Associates noted that 60 percent of production in the region had been halted on Friday as a safety precaution, "but this is being gradually restored, following reports that the storm will not impact operations."

The weather system dissipated over the weekend without damaging key oil and gas infrastructure in the area.

Some investors were trying to determine if oil futures' recent record-setting advance above $80 a barrel had run its course.

Many analysts believe much of oil's latest run can be attributed to speculators buying and selling crude futures contracts with no intention of taking delivery.

That speculative frenzy was heightened last week when the Federal Reserve cut interest rates. Falling interest rates have driven the dollar lower against other global currencies, which makes commodities priced in dollars cheaper for overseas investors.

Oil prices were expected to remain volatile ahead of a midweek U.S. petroleum inventory report forecast to show tighter crude supplies in the world's largest energy consumer.

"The oil price, looking forward, can still be fairly bumpy. A lot will depend on economic information and oil market information," Moore said, adding that the market will be closely watching Wednesday's release of U.S. fuel inventory data.

U.S. crude oil stocks are expected to have fallen 2 million barrels, on average, for the fifth straight week in the week ended Sept. 21, according to a Dow Jones Newswires survey of analysts.

Inventories of distillates, which include heating oil and jet fuel, are tipped to have risen 1.1 million barrels while gasoline inventories are expected to have gained about 100,000 barrels. Refinery use is expected to have dropped 0.7 percentage point to 88.8 percent of capacity.

Heating oil futures lost over a penny to fetch $2.22 a gallon while gasoline prices dropped nearly 2 cents to $2.065 a gallon. Natural gas futures were up 6 cents at $6.3764 per 1,000 cubic feet.

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Associated Press writer Gillian Wong in Singapore contributed to this report.

Source: Associated Press/AP Online

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