Oil Prices Drop Below $80 a Barrel

By GEORGE JAHN

VIENNA, Austria – Oil prices slipped below $80 a barrel Tuesday amid profit-taking as investors awaited the weekly U.S. energy supplies report due Wednesday.

Some investors were taking profits after September’s record-setting rally, said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney. He said the U.S. Energy Department report “will be important for the short-term direction of oil prices.”

Light, sweet crude for November delivery on the New York Mercantile Exchange fell 61 cents to $79.63 a barrel in electronic trading by midday in Europe.

The contract fell $1.42 on Monday amid concerns that market fundamentals do not support recent record-high prices. The front-month dipped as low as $79.45 during the session.

November Brent crude shed 73 cents to $76.91 a barrel on the ICE Futures exchange in London.

U.S. crude oil inventories are expected to have fallen in the week ended Sept. 28, with analysts polled by Dow Jones Newswires predicting a decline of 400,000 barrels on average.

Some analysts said crude oil inventories dropped due to a decrease in domestic output after oil producers shut production facilities in the Gulf of Mexico as a precaution against weather systems that threatened to develop into storms.

Gasoline inventories are expected to have gained 400,000 barrels on average, according to the survey, while distillate inventories were expected to have risen 700,000 barrels.

Heating oil futures lost 1.52 cents to $2.1655 a gallon on the Nymex, while gasoline prices slipped 1.63 cents to $1.9650 a gallon. Natural gas futures added 4.5 cents to $7.095 per 1,000 cubic feet.

Refinery use was expected to have risen 0.4 percentage point to 87.3 percent of capacity.

Energy investors are also closely monitoring the U.S. and global economies to see if the subprime mortgage crises has caused an economic slowdown that could affect demand for oil and gasoline.

Oil prices peaked at a record $83.90 in the second half of September, and drove back to near $83 a barrel last week on supply concerns caused by tropical storms and on buying spurred by the low U.S. dollar. Oil and other commodities denominated in dollars have been kept inexpensive in the eyes of foreign investors, because the dollar has been sliding against other currencies following the Federal Reserve’s recent interest rates cuts.

Investors are betting the rally has largely run its course, as fundamentals reassert themselves as the market’s price driver this month. Oil inventories are high and demand for crude is expected to fall as refineries shut down to conduct routine fall maintenance.

Prices could ease as the oil supply chain looks secure with clear weather forecasts and few fresh geopolitical developments, analysts say. Additionally, Vienna’s PVM Oil Associates noted an “end-of-summer drop in U.S. gasoline demand,” saying the average price decliend by 2.4 cents per gallon over the past week.

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Associated Press writer Pang Ai Lin in Singapore contributed to this report.