Oil slipped below $82 on Friday as energy companies prepared to return workers to the offshore Gulf of Mexico after a storm triggered evacuations and production cuts earlier in the week. Some 62.7 percent of the Gulf's oil production was shut by the foul weather - the most cut from the region since massive hurricanes in 2005 barrelled through the region.
But at least three oil companies said on Friday they planned to resume production soon because the storm had failed to strengthen significantly. "Assuming no other storms, they should all be back up and running by Monday," said Jim Ritterbusch, president of Ritterbusch and Associates. The tropical depression, the 10th to form this Atlantic hurricane season, was expected to hit the Mississippi coast sometime Saturday. US crude for November delivery settled down 16 cents to $81.62 a barrel. The October US crude oil contract expired on Thursday after it hit a record for the seventh straight session at $84.10.
London Brent crude was 21 cents higher at $79.30. Oil has traded above $80 for the past week, boosted by a string of bullish factors including falling crude stocks in the United States, the threat of hurricane damage to oil facilities in the Gulf of Mexico and a weak dollar.
The Federal Reserve's aggressive half-point cut in US interest rates this week to boost the ailing economy has buoyed oil, easing fears of a slowdown that could sap energy demand. "Although the macro-economic environment remains uncertain, forward looking market balances look extremely tight especially for oil and base metals," Barclays Capital said in a research note. Other analysts said oil's relentless rise made it vulnerable to a sharp fall.
"It seems clear to us that fear is overriding fundamentals, thus feeding the upward frenzy," said Edward Meir at MF Global. "However, such a market mind-set is not sustainable, and could trigger a rather severe correction once the music stops."
Opec has agreed to a 500,000 barrels per day increase in output from November 1, but analysts say this is too little to calm fears that oil inventories will tighten during the peak winter demand season.
Iran's Opec governor said the jump in oil prices, which have climbed a third this year and quadrupled since 2002, was not sustainable. Hossein Kazempour Ardebili told state radio crude prices had risen on the back of a range of factors, such as geopolitical issues and turmoil in financial markets, and added that "this situation is not stable and cannot be permanent."
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