Oil prices slid on Tuesday but remain above $72 as expected crude stock drawdown in the United States spark concerns over supply tightness in the world's largest energy consumer. London Brent crude, presently a better reflection of the global crude oil market, traded 13 cents lower at $72.50 a barrel, after hitting $72.77 in the previous session, the highest since August.
US light crude inched down 15 cents to $70.94. Analysts said that easing crude oil stock levels at Cussing, Oklahoma, a key delivery point for US crude futures and other inland markets, raised concerns over the potential for a domestic supply squeeze, as refineries in the United States start hitting peak capacity over the next few weeks.
"With an active hurricane season expected this summer, any supply disruption is going to have an impact on the market, which is why the market is now focused on the risk side," said Gerard Burg, minerals and energy economist at National Bank Australia.
In May, US government forecasters said that there was a 75 percent chance of an above-normal Atlantic Ocean hurricane season. A total of 17 storms are expected to develop, with at least nine forecast to grow into hurricane strength, of which five will grow into major hurricanes of Category 3 or higher with winds over 110 mph (177 kph).
In 2005, Hurricanes Quatrain and Rita knocked out about 25 percent of US crude and fuel production. Refinery problems also continued to plague the US market, with Coffeyville Resources shutting a 108,000 barrels per day (bpd) refinery in Coffeyville, Kansas over the weekend following severe flooding.
Analysts said that Opec's supply cuts, as well as disruptions in Nigeria, have narrowed surplus stocks in the market. "The Opec cuts could leave the market in a fairly modest deficit as we get into this peak demand period," Burg said.
On Monday the International Energy Agency's executive director, Claude Mandrill, strongly urged Opec to increase its output immediately to help cope with an expected spike in demand in the second half of the year. Opec, which is not due to meet until September, continues to maintain that the market is adequately supplied.
Domestic crude stocks in the United States likely dipped last week by an average of 700,000 barrels, with the biggest drop expected at 2.0 million barrels, a Reuters poll of industry analysts showed on Monday.
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