Oil fell on Thursday as worries over the US subprime mortgage sector battered global markets, but losses were limited as refined products prices held firm on tight US supplies. US crude settled down 56 cents at $71.59 a barrel, after falling as low as $70.50. London Brent crude fell 78 cents at $70.21.
Mounting defaults in the US subprime mortgage sector, which makes home loans to people with poor credit histories, roiled world stock markets again on Thursday after revelations that more large financial institutions in the United States and Europe had posted heavy losses on mortgage investments. A shortage of cash in money markets prompted the European Central Bank to add emergency liquidity.
Problems in US credit markets and unease over the health of the US economy have helped knock down US oil prices by 10 percent since they set a new record at $78.77 on August 1.
"The liquidity crises may be bigger than many realise," said Nauman Barakat, senior vice president at Macquarie Futures USA. "Also, the dollar strengthening and gold collapsing are negative signs for energy markets overall. Support from firm oil products prices helped oil to pare losses after touching one-month lows earlier in the day.
Stocks of heating oil in the United States are 36 percent below last year's levels, while gasoline supplies remain below normal levels for this time of year, according to weekly data released by the US government on Wednesday. Production of gasoline and other refined products fell last week as refinery capacity utilisation declined amid fresh operational problems.
Tight refined product supplies have helped crack spreads - the premium on refined products prices over crude oil - recover from recent lows. "The crack spreads continue to firm, mostly off of yesterday's drop in refinery utilisation and strength in the crack spreads tends to be supportive of the entire oil complex," said Jim Ritterbusch of Ritterbusch and Associates in Galena, Illinois.
Further support for oil came from fresh signs that Opec will not increase production at its September meeting despite calls from importers for more oil to avoid draining inventories in consuming nations. "The levels of inventories are much higher than average, there is no need to increase production," Venezuelan oil minister Rafael Ramirez told Reuters.
Output restraint at Opec's largest producer, Saudi Arabia, also appears unchanged. Saudi Arabia told customers in Japan and Europe on Thursday that it would keep oil supply levels unchanged in September.