Oil falls below $60, mild weather curbs demand

US light crude oil CLc1 fell 78 cents to $59.80 a barrel by 15.37GMT, deepening Friday’s $1.20 a barrel fall. London’s Brent crude LCOc1 fell 82 cents to $58.42.

US crude hit a record of $70.85 a barrel in late August in the immediate aftermath of hurricane damage that knocked out large volumes of US supplies.

Prices have since fallen by more than $10 on expectations high prices and mild weather have eroded demand. Last month they touched a three-month low of $58.75.

“Immediate fundamentals look bearish,” said Tony Nunan, the manager at Mitsubishi Corporation’s risk management business in Tokyo. ”Weather seems very mild and inventory levels are high.”

Analysts say uncertainty about the longer term outlook is preventing a deeper sell off at least for now. “The unfolding of winter still presents major price risk both to the downside and to the upside should weather be normal or colder than normal,” Goldman Sachs said in a report.

Temperatures in the US Northeast — the world’s biggest market for heating oil — are running well above the seasonal norm and may remain so throughout this week, forecasters say.

In the north of Japan, the world’s third-largest oil consumer and a major user of kerosene for home heating, the weather should remain normal or warmer than normal for the next two weeks, government forecasts showed late last week.

Although US gasoline inventories are below par, stocks of crude and heating oil are still above year-ago levels, bolstered by hefty imports and reduced demand. Japanese kerosene stocks are about nine per cent higher than the five-year average.

Crude oil production from the hurricane-battered US Gulf has also recovered to its highest level since late August, when Hurricane Katrina thrashed the region. Output rose to nearly half its 1.5 million barrels per day capacity.

Three refineries accounting for just under five per cent of US capacity remain closed following storm damage.

Looking to the very long term future, the International Energy Agency in its World Energy Outlook predicting soaring demand and warned the world must change its energy habits or struggle with choking fumes and a growing dependence on the volatile Middle East for fuel.

To keep pace with demand over the next 25 years, top producer Saudi Arabia and its neighbours would have to spend an annual $56 billion on rigs and refineries or oil prices will race higher, the IEA said.

Failure to spend enough over the next 25 years could slap another $13 a barrel on the projected price of oil.