Oil prices dropped on Monday as Hurricane Emily, which had shut in most of Mexico's crude oil production, lost strength. US light, sweet crude oil futures settled 77 cents lower at $57.32 a barrel, while London Brent crude settled 62 cents weaker at $56.99. Prices on Thursday fell to a two-week closing low following a welter of bearish news, indicating a healthier supply situation and raising the possibility high prices could be eroding demand.
The markets rallied on Friday and in early trade on Monday as traders turned their attention to the latest hurricane of the Atlantic storm season.
"There are two things in the market at the moment," said Geoff Pyne, consultant to Standard Bank Plc. "There is quite a lot of crude building up, but that is counteracted by a series of worries."
The most pressing worry is this year's hurricane season, which forecasters have warned could be especially severe.
Emily, the season's second major hurricane, on Monday weakened to Category 1 from a Category 4 hurricane as it moved over the Yucatan Peninsula.
The US government said on Monday Emily had so far shut in less than one percent of daily US Gulf of Mexico oil and natural gas production.
But hurricane-watchers were concerned Emily could strengthen again when it moved out over the Gulf of Mexico.
Mexico, the world's ninth-largest exporter, which produces 3.44 million barrels per day of crude output, shut down most of the offshore wells in its most productive oilfields in the Gulf of Mexico and two major ports that export crude.
Even if the hurricane does not inflict any damage on oil infrastructure, the shut in of production will at least temporarily eat into inventories.
US crude oil stockpiles are at the upper end of their seasonal average, while inventories of distillates, which include high-demand fuels diesel, jet fuel and heating oil - are around average for the summertime, US data has shown.
The Organisation of the Petroleum Exporting Countries restarted talks on a 500,000-bpd output increase after prices soared back above $60 a barrel earlier this month.
But an Opec delegate said on Monday it was very unlikely Opec would agree to another output hike in the near term.
The cartel is already pumping in excess of its official quotas and Opec officials have repeatedly blamed lack of refining capacity, rather than a lack of crude for current high prices.
In its monthly market report on Monday, Opec downgraded its forecast for demand growth in 2005 by 150,000 bpd.
Last week, the Paris-based International Energy Agency also revised downwards its forecast for global oil demand growth this year by 200,000 barrels per day to 1.58 million bpd, as high prices began to hit demand growth in China and the United States.
SINGAPORE: Oil prices leapt more than one percent on Monday after the world's No 5 oil producer Mexico shut down its biggest oilfields as Hurricane Emily roared toward the southern Gulf of Mexico.
US light, sweet crude oil futures climbed as high as $58.82 a barrel in opening electronic trade, but later stood 51 cents higher at $58.60 a barrel.
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