Oil hovered at a three-month low on Tuesday as concerns over tight supplies eased amid evidence of rising OPEC output and declining US demand in the face of a weak economic outlook.
The losses extended a steep slide from the mid-July peak above $147 a barrel and came despite a storm in the Gulf of Mexico that was curbing oil output, shipping and refining. US light crude fell $1.13 to hit $120.27 a barrel, while London Brent crude shed $1.03 to $119.65 a barrel by 3:09 a.m. British time.
“The sentiment is more bearish now than before as concern over slower US economic growth is impeaching demand,” said David Moore, commodity strategist at Commonwealth Bank of Australia. High energy prices have been of concern in the United States, the world’s largest consumer of oil, already battered by a housing and credit crisis. The losses came after a Reuters survey showed OPEC supply rose for a third consecutive month in July mainly because of increased output from the world’s top exporter Saudi Arabia. The boost in production from OPEC comes as soaring energy prices and an economic slowdown cut into energy consumption in the United States and Europe. “We do expect oil prices to trend lower in the longer term,” Moore said, adding that high prices in general would only curb demand.
However, conflicts in Nigeria and storms threatening the oil and gas infrastructure in the Gulf of Mexico could counter the downtrend in the short-term, he added. Nigeria, the world’s eighth largest oil exporter, is losing an average of 650,000 barrels of crude production a day because of militant attacks that have cut about a fifth of its production. In the United States, Tropical Storm Edouard has disrupted shipping and refinery production as it barreled across the Gulf of Mexico to make landfall along the upper Texas coast on Tuesday. Lower Russian oil output on a year-on-year basis could also combat the weak sentiment.
Energy Ministry data showed on Monday that Russia’s oil production stood at 41.361 million tons (9.78 million barrels per day) in July, down 1.1% versus July 2007, when it stood at 9.89 million bpd. Traders also were nervous that supplies could be disrupted as a result of tension between the West and the world’s fourth-largest oil producer, Iran. The head of Iran’s revolutionary guard was quoted as saying Iran could close the Straits of Hormuz, a key Gulf shipping route, if it were attacked over its nuclear program. (Reuters)