Oil falls below $120 as Edouard spares U.S. Gulf

Reuters
Tuesday, August 5, 2008

NEW YORK (Reuters) - Oil fell below $120 on Tuesday to touch a three-month low as Tropical Storm Edouard hit the Texas coast without causing any major disruptions to U.S. energy operations.

U.S. crude traded down $1.94 to $119.47 a barrel by 1:36 p.m. EDT (6.35 p.m. British time) after tumbling to $118.00 earlier, the lowest price since May 5. London Brent crude lost $2.54 to $118.14 a barrel.

Edouard, the fifth tropical storm of the 2008 Atlantic hurricane season, came ashore at the McFaddin National Wildlife Refuge, a stop-over point for migrating birds like snow geese halfway between High Island and Sabine Pass.

The storm caused only minor oil and natural gas outages as it passed through the U.S. Gulf of Mexico, and companies began to fly evacuated staff back to rigs.

About 6 percent of Gulf of Mexico crude oil and 12.3 percent of natural gas production was shut in by the storm, the U.S. Minerals Management Service said.

"Crude and products futures are sharply lower ... as Tropical Storm Edouard is projected to do little damage," Addison Armstrong, analyst at Tradition Energy, wrote in a research note.

The Louisiana Offshore Oil Port, the nation's only deepwater oil port, said it was resuming offshore operations and expected to offload its first tanker in over 24 hours by early Tuesday afternoon.

The U.S. Gulf of Mexico supplies about a quarter of the country's crude oil output and 15 percent of its natural gas. Gulf Coast refiners make about a quarter of domestic gasoline.

The market losses extended a drop that has sent U.S. crude from the July 11 record over $147 a barrel amid growing signs demand in the United States and Europe has fallen due to surging fuel costs.

Rising demand from China and other Asian countries helped send oil on a six-year rally that sent prices up sevenfold at their peak. Some analysts forecast prices could fall further, however, if demand remains tepid in industrialized nations.

"(Oil could fall) to about $100 within the next month if you keep on getting weak demand data," said Angus McPhail of British-based investment firm Alliance Trust.

Traders said oil was not greatly impacted by the Federal Reserve's decision to hold U.S. interest rates steady, after a series of cuts since the second half of 2007 sparked buying from investors hedging against inflation and the weak dollar.

"The oil market is off on its own little world," said Truman Arnold trader Tom Knight.
Analysts are eyeing ongoing tension between major oil exporter Iran and the West over Tehran's nuclear work for support, as well as Nigerian supply disruptions.

Iran delivered a letter to world powers on Tuesday but gave no concrete reply to a demand to freeze its nuclear activity, a defiant step that the United States has warned could lead to more sanctions.

OPEC member Nigeria is losing an average of 650,000 barrels of crude production per day to militant attacks and security concerns in the Niger Delta, according to the government.

A Reuters poll of analysts on Tuesday forecast U.S. government weekly inventory data to be released on Wednesday will show a 300,000 barrel rise in crude inventories, a 2.1 million barrel rise in distillates, and a 1.2 million barrel draw in gasoline stocks.
SOURCE: Reuters