Oil fell below $120 on Tuesday to touch a three-month low as Tropical Storm Edouard hit the Texas coast without causing any major disruptions to US energy operations. US crude traded down $1.94 to $119.47 a barrel by 1:36 pm EDT (1735 GMT) after tumbling to $118.00 earlier, the lowest price since May 5. London Brent crude lost $2.54 to $118.14 a barrel.
Edouard, the fifth tropical storm of the 2008 Atlantic hurricane season, came ashore at the McFaddin National Wildlife Refuge, a stop-over point for migrating birds like snow geese halfway between High Island and Sabine Pass. The storm caused only minor oil and natural gas outages as it passed through the US Gulf of Mexico, and companies began to fly evacuated staff back to rigs.
"Crude and products futures are sharply lower ... as Tropical Storm Edouard is projected to do little damage," Addison Armstrong, analyst at Tradition Energy, wrote in a research note. The Louisiana Offshore Oil Port, the nation's only deepwater oil port, said it was resuming offshore operations and expected to offload its first tanker in over 24 hours by early Tuesday afternoon.
The US Gulf of Mexico supplies about a quarter of the country's crude oil output and 15 percent of its natural gas. Gulf Coast refiners make about a quarter of domestic gasoline. The market losses extended a drop that has sent US crude from the July 11 record over $147.00 a barrel amid growing signs demand in the United States and Europe has fallen due to surging fuel costs.
Rising demand from China and other Asian countries helped send oil on a six-year rally that sent prices up sevenfold at their peak. Some analysts forecast prices could fall further, however, if demand remains tepid in industrialised nations. "(Oil could fall) to about $100 within the next month if you keep on getting weak demand data," said Angus McPhail of British-based investment firm Alliance Trust.
Still, analysts are eyeing ongoing tension between major oil exporter Iran and the West over Tehran's nuclear work for support, as well as Nigerian supply disruptions. Iran has not answered demands by world powers to halt nuclear activity, an Iranian official said on Tuesday, a stand that could endanger the possibility of full talks and lead to tighter sanctions.
Tehran handed a letter to European Union foreign policy chief Javier Solana in response to an offer in June by major powers to refrain from moving to impose more UN penalties if Iran froze expansion of its nuclear work.