Oil fell on Monday, edging further away from last week's record high, as energy companies in the Gulf of Mexico began restoring output shut by a storm. US crude settled 67 cents lower at $80.95 a barrel, bringing it nearly $3 below the record $83.90 hit last week on the Gulf production outages, falling US inventories, rising speculative inflows and the weakening US dollar.
London Brent crude shed 39 cents to $78.91. Crude oil production in the US Gulf of Mexico rose to 80.7 percent of capacity on Monday, up from 37 percent Friday, according to the US Minerals Management Service, as oil companies redeployed workers to offshore rigs.
Anticipation of last week's storm dealt the heaviest blow to Gulf of Mexico oil production since the massive hurricanes of 2005 as oil companies took preventive measures. But the storm passed through the region without causing damage to installations.
While some analysts say crude could be ready for a downward correction, they warn that geopolitical concerns or more storms in the Gulf could spur prices higher again.
"Markets can typically overshoot in the short-term, as has been the case recently," said Harry Tchilinguirian, senior oil analyst at BNP Paribas."Of course, another weather or geopolitical event can send the market higher, but fundamentally during the autumn (refinery) maintenance period, we have a potential for a correction before another upturn."
Oil and other commodities have been boosted by the falling dollar, which hit a record low against the euro for a third straight session on Monday, with gold near a 28-year peak. "Commodities in general have benefited from the weakness of the dollar, but crude oil has acted more like a dollar derivative," said Olivier Jakob of Petromatrix.
Rising investment flows are also supporting prices, with speculators' increasing net long positions on the New York Mercantile Exchange in the week to September 18 in a bet prices are heading higher. "The supportive planks for oil bulls, tensions in Nigeria and between the West and Iran, are once again figuring in the minds of traders," Addison Armstrong, analyst at TFS Energy, wrote in a report.
But technical analysts who track price patterns see signs the price surge may soon run out of steam. Opec earlier this month agreed to raise output by 500,000 barrels per day (bpd) from November 1, a move analysts have said is not enough to calm supply concerns ahead of winter demand.
Nigeria's oil minister said on Monday there was no need for more Opec oil, however, and that the group was not considering raising output again right now. A Reuters poll of analysts forecast weekly US government data to be released on Wednesday will show a 2 million barrel crude draw, a 1.3 million barrel build in distillates and no change to gasoline stocks.
SYDNEY: Oil prices fell on Monday, as oil and gas producers in the Gulf of Mexico restored more output after a mild storm triggered evacuation and production cuts. US crude for November delivery fell 48 cents to $81.14 a barrel by 0712 GMT to stand nearly $3 below the all-time high set by the October-month contract on Thursday. London Brent crude shed 45 cents to $78.85 a barrel.