Oil eases towards $80, US Gulf output rises

LONDON - Oil extended its slide towards $80 a barrel on Tuesday on continued profit-taking from last week’s record high, as more output was restored in the Gulf of Mexico following shutdowns triggered last week by a storm.

By (Reuters)

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Published: Tue 25 Sep 2007, 4:49 PM

Last updated: Sat 4 Apr 2015, 11:44 PM

US crude for November fell 73 cents to $80.22 a barrel by 1000 GMT, adding to Monday’s 67-cent loss to bring it nearly $4 below the record $83.90 set by the October contract last Thursday.

London Brent crude shed 50 cents to $78.41 a barrel.

US crude oil production in the Gulf of Mexico rose to 80.7 percent of capacity on Monday, up from 37 percent on Friday, the US Minerals Management Service said, as oil companies redeployed workers to offshore rigs.

‘What we saw was a risk premium embedded into crude prices, but now that the storm passed without damaging production facilities, we see prices coming down,’ said Gerard Burg, Minerals and Energy Economist at National Australia Bank.

But traders kept a wary eye on upcoming storm threats. The US National Hurricane Center said on Monday a tropical cyclone could form in the southwestern Gulf of Mexico, while a couple of tropical depressions could form in the Atlantic.

However, three out of four weather models predict the system will steer clear of US oil and gas producing facilities.

‘In the short term, we believe there’s potential for a price correction,’ said Harry Tchilinguirian, senior oil analyst at BNP Paribas, citing heavy refinery maintenance expected next month and a seasonal drop in demand as bearish factors.

‘When the risks of hurricanes are also behind us, the sort of correction we had last October—losing $10 quite easily at the end of the season—we believe we could have a repeat of that,’ he added.

US inventories

The market is also looking for direction from the US weekly petroleum stocks data, due on Wednesday.

A Reuters poll of analysts showed US refiners probably slowed imports of crude oil last week, causing inventories to fall by about 2 million barrels, their fifth-straight decline.

Stocks of distillates, including heating oil, were expected to have risen by 1.3 million barrels while gasoline inventories were seen unchanged, the preliminary poll found.

Refiners could have curbed imports for economic reasons too, the poll showed, as prices for future crude deliveries are cheaper than the currently traded month, making it good business sense not to store more feedstock than needed.

Some analysts warn speculative cash or tightening supplies could spur oil prices higher again, after last week’s surge on the back of storm threats and a slumping dollar following a cut in US interest rates.

Rising investment flows are supporting prices, with speculators’ increasing net long positions on the New York Mercantile Exchange in the week to Sept. 18 in a bet prices are heading higher.

Worries over supply in Nigeria also continued, as the Movement for the Emancipation of the Niger Delta (MEND) threatened fresh attacks on oil facilities and abductions of foreign workers.

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