Oil steadies above $114 after biggest drop since 2004

Analysts said Russia’s withdrawal of the bulk of its troops from Georgia on Friday was also bearish for the market, but geopolitical tensions between United States and Russia, the world’s second-biggest oil producer, would continue to lend support to prices until Moscow withdraws its troops completely.

US light crude for October delivery fell 4 cents to $114.55 a barrel by 5:20 a.m. British time. The contract fell $6.59, or 5.4%, to settle at $114.59 a barrel on Friday -- the biggest one-day fall in percentage terms since December 27, 2004. London Brent Crude eased 2 cents at $113.90.

Oil has fallen about 22% since its peak of above $147 struck mid-July on concerns high energy costs are taking a toll on global fuel demand. “I think traders in Asia are now feeling a bottom to the market after prices fell over $6 on Friday, so some of them may be seeing a buying opportunity at these price levels,” said Gerard Rigby, an analyst at Fuel First Consulting in Sydney. “Lingering concerns about Russia and Georgia are also giving some support to prices.”

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 to positions held before fighting broke out over a Georgian rebel region.

The easing of Tropical Storm Fay, which poured rain along the US Gulf Coast on Sunday local time, also diminished concerns the storm might disrupt oil and natural gas production at the Gulf of Mexico production areas. Energy companies, including Chevron Corp, ExxonMobil Corp, BP, ConocoPhillips and Royal Dutch Shell said they were keeping track of the storm but their operations were not affected.

The US dollar rose to a two-year high against the pound on Monday after data last week showed Britain’s economy was stalling, prompting expectations of an interest rate cut by the Bank of England. Oil’s sharp fall on Friday was prompted by a strengthening US dollar and reports that showed an uptick in OPEC crude oil output and another showing an expected decline in US travel over the September 1 Labor Day holiday weekend as high fuel prices hit consumers.

Industry consultant Petrologistics said on Friday, OPEC oil output was expected to rise in August by 450,000 barrels per day, to 32.95 million bpd, a factor that could further beef up inventory levels in consumer nations. The US auto and travel group AAA said Labor Day holiday travel was expected to fall this year by the largest amount in at least eight years as consumers struggle with higher gasoline prices and airfares. (Reuters)