Oil fell on Monday on forecasts that Hurricane Dean would miss US Gulf of Mexico refineries and offshore production platforms. Crude erased some earlier losses on news that Mexico, a top US oil exporter, shut in over 80 percent of output as the storm churned toward its Bay of Campeche production centre.
US crude settled down 86 cents at $71.12 a barrel after trading down to $70.05 earlier. London Brent crude fell 59 cents to $69.85 a barrel. "I think we are down on the fact that Dean is going to bypass the Gulf of Mexico in terms of production," said Eric Wittenauer, analyst at A.G. Edwards.
The US National Hurricane Center forecast Dean would spin south of the US portion of the Gulf, home to about half of US refining capacity and a third of domestic oil production. The storm was expected to cross the Yucatan Peninsula into Mexico's Bay of Campeche.
Analysts said expectations that US Gulf Coast refiners, slammed by Hurricanes Katrina and Rita in 2005, would escape undamaged helped bring down US gasoline futures 5 percent and dragged down the rest of the oil complex.
Oil rebounded off session lows after Mexico's state oil company Pemex shut 2.65 million barrels per day (bpd) of oil production and 2.634 billion cubic feet per day of natural gas output. Pemex exported 1.604 million bpd to the United States during the first five months of 2007. The US government said it was ready to make emergency oil loans from the nation's Strategic Petroleum Reserve to refineries, if necessary, to help offset any loss of Mexican oil supplies due to Hurricane Dean.
Packing winds of 150 miles (241.4 km), Dean was likely to become a Category 5 hurricane before making landfall on the Yucatan early Tuesday morning, the NHC said.
US operators had shut around 42,000 bpd out of 1.3 million bpd of Gulf oil output and 100 million cubic feet per day out of 7.7 billion cubic feet per day of natural gas, the US government said on Monday. Oil had rallied on Friday, recovering from its lowest close in a month and a half after the US Federal Reserve cut its discount lending rate by a half percentage point, lifting stock markets that had been battered by the credit market squeeze.
Calm returned slowly to financial markets on Monday, but there were lingering signs that credit problems persist despite policy-makers' insistence that global economic growth would remain solid. The Dow and Nasdaq turned higher late Monday.
Last week's losses in financial markets had taken a toll on oil as investors sold to cover positions, knocking US crude prices nearly 10 percent down from the record high on August 1. "Should the Fed's action prove insufficient to calm market concerns, we believe that further liquidation could cause US WTI prices to drop to the mid-$60 a barrel level given the large remaining net speculative length in the energy market," Goldman Sachs wrote in a research note.
It listed three factors that may trigger further liquidation: continued fund redemption's and the need to obtain liquidity; data suggesting a credit contagion to the real economy, and data such as a US oil stock build.
"Longer term, the continuing global credit turbulence raises significant risks for oil demand growth, but in the short term the biggest impacts on oil markets will likely be a flight to safety and a need to liquidate holdings to unwind leveraged positions elsewhere," PFC Energy said in a report.
SYDNEY: Oil prices tumbled over 1 percent in trade on Monday as powerful Hurricane Dean appeared unlikely to plough through key production and refining centres in the US Gulf. US crude fell 73 cents, or 1.01 percent, to $71.25 a barrel in Globes electronic trading. London Brent crude fell 74 cents to $69.70.
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