Oil Prices Slide After Supply Fears Ease

VIENNA, Austria – Crude oil prices fell Thursday after the U.S. Department of Energy’s weekly report on petroleum stocks eased concerns of supply disruptions from hurricanes in the Gulf of Mexico.

In Kuwait, OPEC’s president expressed confidence that price declines over the past two days were “a positive start” to price stabilization, although analysts cautioned that next week’s U.S. data could reveal shortfalls caused by the storms.

Light, sweet crude for September fell 21 cents by afternoon in Europe to $57.81 a barrel on the New York Mercantile Exchange. Heating oil and unleaded gasoline were little changed at $1.5975 a gallon and $1.6750 a gallon.

On London’s International Petroleum Exchange, September Brent futures slipped 10 cents to $56.55 a barrel.

China’s decision to stop pegging its currency to the U.S. dollar and instead let it float in a tight band against a basket of foreign currencies did not appear to affect oil markets. Experts said the move would not have much influence on crude prices.

“Chinese buying power won’t change,” said Peter Morici, a business professor at the University of Maryland. Because China “has such a huge trade surplus, it can pay whatever it needs to for oil,” he added.

China’s rapid economic growth has been a major factor in increased demand for crude. China’s huge economy grew by 9.5 percent in the first half of 2005 from the same period a year earlier, despite efforts to ease the breakneck growth.

The U.S. supply report showed a build in distillate fuels – which includes heating oil, diesel and jet fuel – while crude inventories declined less than expected, showing that Hurricane Dennis caused little damage to output in the Gulf of Mexico.

Crude oil inventories slipped by 900,000 barrels to 320.1 million barrels, or 7 percent above year-ago levels, the agency said. Analysts said traders were expecting a decline of at least twice that much. Distillates grew by 2.3 million barrels to 122.7 million barrels, or 5 percent above year-ago levels.

Dennis had forced several oil fields and rigs to close when it struck nearly two weeks ago. Its successor, a now-weakening Hurricane Emily, missed the United States this week but caused precautionary rig evacuations on the U.S. side of the Gulf of Mexico.

Oil workers began returning to rigs in the southern Gulf of Mexico, and Mexican state oil monopoly Petroleos Mexicanos had opened its three main loading ports on Wednesday, as Hurricane Emily hurtled slowly inland.

Another storm, Tropical Depression 6, was brewing, but appeared to be heading north, and away from the Gulf.

“With Emily missing to the south, Tropical Depression No. 6 taking a northern track, concerns about hurricanes may ease for the moment,” said David Knapp, an analyst with Energyintel.

Frederic Lasserre, head of commodities research at SG Securities in Paris, described the U.S. report as “fairly bearish,” with a “minor draw on (crude) stocks, and quite a substantial build in distillates.”

“Even the draw on gasoline is quite small,” said Lasserre.

He cautioned, however, about the possibility of further storms and against totally discounting Emily’s effects – including the disruptions caused by the rig closings – saying: “Maybe we can expect some of the impact that we were expecting this time to appear in next week’s (U.S.) report.”

In Kuwait, Organization of Petroleum Exporting Countries president Sheik Ahmed Fahd Al Ahmed Al Sabah said this week’s drops in oil prices were a good sign.

This is a “positive start of the fall of the prices,” Al Sabah said Wednesday, according to the official Kuwait News Agency.

Al Sabah reiterated the high prices were market- and refinery-related, and were not because of excess capacity that analysts say is limited.

OPEC members, including non-quota bound Iraq, produce around 30 percent of global daily crude, but the cartel’s recent moves to add barrels to ease prices have failed.

Prices are over 35 percent higher than a year ago, but more than $4 off their record intraday price of $62.10 a barrel hit July 7. In 1980, prices rose to an inflation-adjusted $90.

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Associated Press writer En-Lai Yeoh in Singapore contributed to this report.