Oil prices slipped on Monday as demand worries due to surging fuel costs outweighed supply concerns caused by a tropical depression in the Caribbean. US crude fell 34 cents to $114.25 a barrel by 1:22 pm EDT (1722 GMT) after falling more than 5.4 percent on Friday in the largest one-day slide since December 27, 2004. Brent crude traded down 31 cents to $113.61 a barrel.
Oil has tumbled from a record high over $147 struck on July 11 on growing signs demand in the United States and other consumer nations has faltered due to surging fuel costs. "All the factors that have motivated the price down are still intact," said James Crandell, analyst for Lehman Brothers.
"(There are) demand concerns and also increasing supply." The US National Hurricane Center said an area of low pressure over the central Caribbean Sea formed into Tropical Depression Seven and could become the season's latest tropical storm later Monday.
According to forecast tracks, two of six forecasters expect the system to head north-west into the Gulf of Mexico, where there is a high concentration of US oil and natural gas production. Four other forecasts show the system headed toward Belize or the Yucatan Peninsula, however. Worries over the storm helped counter strength in the dollar earlier Monday. Investors have used commodities as a hedge against inflation and the weak dollar this year.
"Judging from the dollar's gains, crude oil should be down a lot, but that is not the case as a developing storm in the Carribean Sea appears (to be) supporting oil," said Phil Flynn of Alaron Trading in Chicago. Further support on Monday came from ongoing tension between the West and Russia over Georgia and expectations that oil exporter group Opec, which meets on September 9, could trim production should prices fall further. Moscow's military intervention in Georgia has disrupted some shipments of Azeri oil through Georgia.
Russia, which began to pull out the bulk of its forces from Georgia last week, said on Saturday its troops would patrol one of Georgia's main Black Sea ports, defying Western demands for a complete pullback. Russian lawmakers on Monday urged the Kremlin to recognise two rebel regions of Georgia, a move seen as likely to worsen relations with the West. Russia said its troops would patrol one of Georgia's Black Sea ports, Poti.
Iran's oil minister said on Monday he expected Opec to work on preventing the falling trend in crude prices and also to study oversupply in the market when it meets on September 9 in Vienna. Venezuela said on Friday Opec should consider cutting oil production at the meeting if it decides that recent price declines constitute a sustained downturn.
An Opec source, however, said, the cartel is likely to keep oil output policy unchanged. The Organisation of the Petroleum Exporting Countries, the source of two in every five barrels of oil, boosted output further in August, according to industry consultant Petrologistics on Friday.
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