Oil Futures Drop Below $60 Per Barrel

SINGAPORE – Oil prices dipped Thursday as traders took profits in Asia, continuing an earlier slide after the Department of Energy said distillate stocks grew in the United States and an international energy watchdog’s forecast of cooling demand worldwide.

But the aftereffects on production output from Hurricane Dennis slicing through the Gulf of Mexico last week continued to weigh heavily on traders’ minds, analysts said, as concerns over Hurricane Emily – now blowing through the Caribbean – eased.

Midmorning in Singapore, light, sweet crude for August delivery fell 26 cents to $59.75 a barrel in heavy trading. It had fallen 61 cents, or around 1 percent, to $60.01 a barrel in New York floor trade.

Other Nymex products tailed crude’s fall. Heating oil was down 1 cent to $1.7071 a gallon while gasoline was down a penny and a half to $1.74 a gallon.

The front-month Nymex crude futures contract had its peak settlement of $61.28 on July 6 and touched an intraday high of $62.10 the day after.

On Wednesday, the Paris-based International Energy Agency revised its global demand growth outlook down by 200,000 barrels a day to 1.58 million barrels a day in 2005, citing a weaker outlook for United States and China, the world’s top two energy consuming nations.

"The IEA is painting a calming picture of oil markets for the rest of this year and next," said Energyintel analyst David Knapp in a research note. "The agency also sees signs of an upward response to higher prices in upstream oil and gas activity that may impact markets down the road."

China’s hunger for oil has been blamed for the fall in global spare capacity and rising prices but Morgan Stanley economist Andy Xie believes demand from the mainland is slowing.

"At some point, the oil market will abandon the fiction of endless Asian or Chinese demand," Xie said in a research note Wednesday. "China’s economy is beginning to slow down due to overcapacity … I have never seen people buying something on what I believe is so much misinformation."

Oil prices are around 45 percent higher on year, but still remain far below the $90 it would need to surpass the all-time inflation adjusted high set in 1980.

Factoring into the fall was the U.S. Department of Energy’s weekly supply report, which showed crude oil inventories fell by 3.9 million barrels to 321 million barrels, or 6 percent above year ago levels. Gasoline stocks declined by 2.7 million barrels to 212.6 million barrels, or 1 percent above last year.

But the key was the 3.2 million increase in the supply of distillate fuel, putting inventories 4 percent above year ago levels at 120.4 million barrels. The use of distillates – which include heating oil, diesel and jet fuel – will increase as winter approaches.

Elsewhere, the U.S. Minerals Management Service said Hurricane Dennis forced a halt of 5.2 million barrels of crude production in the Gulf of Mexico from July 8 to July 13, and as of Wednesday, only six oil platforms and rigs remain unstaffed.

The damage was far less compared to Ivan’s destructive path through the Gulf of Mexico and Louisiana last year, a primary reason for the spike in the second half of last year.

Still, forecasters continued to monitor Hurricane Emily, which was upgraded from a tropical storm to a Category 1 hurricane late Wednesday.