Oil Prices Drop by Almost $1 Per Barrel

WASHINGTON – Oil prices fell by almost $1 per barrel on Thursday after a string of rush-hour blasts in London, an increase in U.S. heating oil supplies and as traders took profits from previous runups.

“There are concerns that terrorism could impinge on demand” by hurting the fuel-dependent airline industry, said oil analyst Marshall Steeves of New York-based brokerage Refco.

Three near simultaneous explosions hit the London subway and one tore open a packed double-decker bus during the morning rush hour Thursday. The blasts killed more than 30 people and injured more than 300 in what a shaken Prime Minister Tony Blair called a series of “barbaric” terrorist attacks.

In late morning trade, light sweet crude for August delivery fell 98 to $60.30 per barrel on the New York Mercantile Exchange.

Immediately after the explosions in London were reported, oil futures plummeted in electronic trade, dipping as low as $57.20 per barrel. Earlier Thursday, crude prices hit another record high above $62 a barrel before backing off.

Heating oil futures slipped by 1.28 cent to $1.782 per gallon on Nymex, where gasoline futures fell less than a penny to $1.7835 a gallon.

At London’s International Petroleum Exchange, August Brent futures dropped $1.17 to $58.68 a barrel.

Steeves said he does not anticipate a significant dropoff in jet fuel consumption as a result of the attacks in London, adding that he believes the longer-term trend for global oil demand – and prices – is higher.

He also attributed Thursday’s selloff to the release of the U.S. government’s weekly petroleum report, which showed a huge build in the nation’s supply of distillate fuel, including heating oil, jet fuel and diesel.

The report also showed a large decline in domestic crude oil inventories, which may have kept prices from falling further. Concerns about an approaching hurricane in the Gulf of Mexico also kept oil prices supported.

“The projected path, for what it’s worth, is that it’s headed right smack at the oil and gas production in the Gulf,” Steeves said.

Hurricane Dennis flooded roads in Haiti and threatened a direct hit on Jamaica, becoming the second storm this week to threaten petroleum output in the region.

Commodities analyst Frederic Lasserre at Paris-based SG Securities said he expected the events in London to temporarily depress oil prices but that the market’s concerns over the tight supply-demand balance would once again be the major focus.

On Wednesday, power outages caused by Tropical Storm Cindy disrupted a minor amount of oil production and refining operations in the Gulf of Mexico and sent oil prices to a record above $61 a barrel.

Traders fear a repeat of last year’s Hurricane Ivan, which damaged oil platforms in the Gulf of Mexico and caused others to shut down for months. Almost 44 million barrels of oil production were lost between September 2004 and February 2005, while natural gas output declined over the same period by 172 billion cubic feet.

The U.S. Energy Department’s latest petroleum snapshot showed a 3.6 million barrel decline in oil inventories last week, leaving supplies at 324.9 million barrels, or 7 percent above year ago levels.

Gasoline inventories shrank by 900,000 barrels to 215.3 million barrels, or 3 percent above year ago levels. The domestic supply of distillate fuel grew by 4 million barrels to 117.2 million barrels, or 3 percent above last year.

Crude oil futures are about 60 percent above year ago levels, though still below the inflation-adjusted high above $90 a barrel reached in 1980.

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Associated Press Writer Edith Balazs in Budapest, Hungary, contributed to this report.