Oil price falling....a brief respite?

Oct 30, 2007

Oil eases as investors take profits from new peaks

OIL prices fell nearly 1 per cent to below US$93 (S$135) a barrel on Tuesday, fading from their latest record high as investors took profits from a rally driven by a Mexican supply outage and the spiralling dollar.

US crude fell by 71 cents to US$92.82 a barrel by 0543 GMT (1.43pm Singapore time) after hitting a record high of US$93.80 in the previous session.

London Brent lost 59 cents to US$89.73, down nearly US$1 from its record high.

'Investors are reluctant to buy oil at high prices and they are trying to take profits at the moment,' said Mr Tetsu Emori, fund manager at Japan's Astmax Futures.

'But the market is still strong - the trouble in Mexico is very supportive and the weak dollar also provides room for oil prices to go up.' State oil company Pemex has shut a fifth of Mexico's crude production and halted the bulk of exports, as storms kept ships bottled at ports across the country. It hopes to resume supplies when bad weather eases in a day or so.

The US dollar hovered near record lows versus the euro and major currencies on Tuesday, ahead of an expected interest rate cut when the US Federal Reserve's Federal Open Market Committee meets on Oct 30-31.

Lower interest rates in the wake of the US subprime debacle helped fuel an influx of investor capital into commodities, pushing oil toward its inflation-adjusted, all-time peak of US$101.70 a barrel in April 1980.

Despite widespread expectations of cheaper money, the Wall Street Journal reported on Tuesday that a rate cut was not a sure thing, causing the dollar to firm slightly.

Oil cartel Opec has shrugged off calls from importer nations to cool prices by raising crude output, blaming politics and speculation - not a supply shortfall - for US$90-plus oil.

On Wednesday traders will shift focus to weekly US inventory data expected to show crude stocks rose 600,000 barrels in the week to Oct 26, helping buffer stocks after last week's sharp decline, which kicked off an US$8 rise over four days.

Distillate stocks were seen falling by 1.1 million barrels and gasoline stocks down by 300,000 barrels. -- REUTERS