Crude Prices Fall Due to Profit-Taking

By TANALEE SMITH

SINGAPORE – Crude oil prices fell Tuesday, likely a result of profit-taking a day after prices jumped more than $2 a barrel in response to the shutdown of a large oil field in the U.S. state of Alaska.

Light sweet crude for September delivery was down .28 cents to $76.70 a barrel in midmorning Asian electronic trading on the New York Mercantile Exchange.

September Brent at London’s ICE Futures exchange fell 41 cents to $77.89 a barrel.

“It’s possibly because people are taking profits after the sharp increase the day before,” said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. “They are possibly also waiting for further news on BP.”

BP Exploration Alaska Inc. began shutting down 400,000 barrels of daily oil production Sunday at Prudhoe Bay, in Alaska’s North Slope region, because of severe corrosion on a pipeline. BP officials said it could take weeks or months to restore lost production but the company would try to put portions of the network back into operation as they are repaired.

The news drove crude oil to a trading peak of $77.30 before it settled at $76.98 a barrel. It was the highest settlement price since July 14, when crude settled at a record $77.03 a barrel.

The news also caused gasoline futures to rise, and experts expect prices at the U.S. pump to increase by about 10 cents a gallon.

In other Nymex trading Tuesday, gasoline futures rose 0.44 cent to $2.2560 a gallon. Heating oil futures fell marginally to $2.1411 a gallon, and natural gas rose 8.3 cents to $6.990 per 1,000 cubic feet.

Noting that U.S. gasoline stocks are expected to fall for the third straight week in data due Wednesday form the Energy Information Administration, Emori said crude oil prices are likely to revert toward an increase.

“There is little downside risk,” Emori said.

At around 334 million barrels, U.S. crude inventories are at a 5-year high, but OPEC’s spare capacity (which can be added within a month and sustained for 3 months) is tight at around 2 million barrels a day.

BP’s production shutdown adds to the list of supply worries that are currently buoying oil prices: the potential for storms in the Gulf of Mexico, violence in the Middle East and unrest in Nigeria, Africa’s biggest oil producer.

On Monday, the violence between Israel and Hezbollah guerrillas in Lebanon neared its fifth week. While diplomatic efforts were intensifying at the United Nations, the fighting continued unabated.

Crude prices rose to a record $78.40 a barrel on July 14 on worries that Iran, OPEC’s No. 2 producer, could cut supplies if it gets involved in the fighting in Lebanon and Israel. Iran is also entrenched in a standoff with the United Nations over its nuclear program, and Iranian officials haven’t ruled out using oil as a bargaining chip.

Meanwhile in Nigeria – Africa’s biggest oil exporter and the fifth-largest supplier of crude to the United States – militant attacks this year have shut down a quarter of the 2.6 million barrels of oil it normally produces each day.

Oil prices are 20 percent higher than a year ago, but still below all-time inflation-adjusted highs of around $90.