Oil eases but Gulf of Mexico storm support

Oil eases but Gulf of Mexico storm support
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First Published: Fri, Sep 21 2007. 05 00 PM IST
Updated: Fri, Sep 21 2007. 05 00 PM IST
Update (Reuters)
London: Oil prices slipped a little on Friday, 21 September, after hitting a succession of record highs this week which were fuelled in part by oil company production shut-downs in the Gulf of Mexico because of a storm threat.
US crude for November delivery, fell 27 cents to $81.51 a barrel by 1058 GMT. The October US crude oil contract expired on Thursday after it hit a record for the seventh-straight session at $84.10.
London Brent November crude was 9 cents lower at $79, after a record high of $79.28 on Thursday.
Oil has traded above $80 for the past week, boosted by a string of bullish factors, including falling crude stocks in the US, the threat of hurricane damage to oil facilities in the Gulf of Mexico and a weak dollar.
Energy companies have shut close to a third of US oil output in the Gulf of Mexico as a precaution against a tropical disturbance becoming a storm as it enters the region.
The Gulf shut-downs, plus a drop in crude oil stocks in top consumer the US for the fourth week in a row have helped accelerate oil’s rise to record highs.
And an aggressive 0.5 percentage point cut in interest rates this week by the US Federal Reserve to boost the US economy has eased fears of a US slowdown that could hurt oil demand.
But analysts said oil’s relentless rise has made it vulnerable to a sharp fall.
“It seems clear to us that fear is overriding fundamentals, thus feeding the upward frenzy,” said Edward Meir at MF Global. “However, such a market mindset is not sustainable, and could trigger a rather severe correction once the music stops,”
OPEC has agreed to a 500,000 bpd increase from Nov. 1, but analysts say this is too little to calm fears that oil inventories will tighten during the peak winter demand season.
Iran’s OPEC governor said the jump in oil prices, which have climbed a third this year and quadrupled since 2002, was not sustainable.
Hossein Kazempour Ardebili told state radio crude prices had risen on the back of a range of factors, such as geopolitical issues and turmoil in financial markets, and added that “this situation is not stable and cannot be permanent”.
Morning, from AP
Singapore: Oil prices fell slightly on profit taking today but were expected to hold near record levels as traders kept a watchful eye on the development of a potential tropical storm in the Gulf of Mexico.
US forecasters warned that a weather system swirling over waters west of Florida could make landfall as a tropical storm over the weekend.
“I expect a lot of support for pricing as traders don’t want to be caught short ahead of the weekend,” said Victor Shum of Purvin & Gertz in Singapore. “And folks will continue to watch how this storm develops over the course of trading.”
Light, sweet crude for November delivery lost 6 cents to $81.72 a barrel in Asian electronic trading on the New York Mercantile Exchange midmorning in Singapore.
The October crude contract hit a record high for the fourth straight session before expiring on 20 September up $1.39 at $83.32 a barrel. It rose as high as $83.90 in intraday trading.
As a precaution, oil industry workers left five production platforms in the Gulf, and three drilling rigs have been evacuated, according to the US Minerals Management Service. But the evacuations are likely temporary, given that oil and gas platforms are built to withstand smaller storms even of tropical strength, analysts say.
The temporary closure of about a quarter of the Gulf of Mexico’s daily oil production lent an extra boost to the oil market’s already strong record-breaking run, because traders view US crude inventories as tight. Last week, crude inventories declined.
But the real drive behind the rally, many analysts say, is an influx of speculative “nontraditional” capital into energy commodities, an inflow that increases when the dollar falls. On Thursday, the dollar fell to yet another record low against the euro, and dropped to the same value as the Canadian dollar for the first time since November 1976. A weak dollar supports oil prices by making futures cheaper for foreign investors.
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First Published: Fri, Sep 21 2007. 05 00 PM IST
More Topics: Oil prices | Money Matters | Commodities |