Oil tumbles back near $59

[notiCIas]

Oil tumbles back near $59

Recovering U.S. crude production and mild weather ease worries of a supply shortfall.

November 7, 2005: 11:29 AM EST


LONDON (Reuters) - Oil sank as low as $59 a barrel Monday as mild weather across the northern hemisphere and recovering U.S. production eased fears supplies could run short.

Light sweet crude oil for December delivery tumbled $1.43 to $59.15 a barrel on the New York Mercantile Exchange after falling $1.20 Friday. The contract touched a low of $58.90.

London's Brent crude fell 82 cents to $58.42.

U.S. crude hit a record trading high of $70.85 a barrel in late August in the immediate aftermath of hurricane damage that knocked out large volumes of U.S. supplies.

Prices have since fallen by more than $10 on expectations high prices and mild weather have eroded demand. Last month they touched a three-month low of $58.75.

"Immediate fundamentals look bearish," said Tony Nunan, the manager at Mitsubishi Corp.'s risk management business in Tokyo. "Weather seems very mild and inventory levels are high."

Analysts say uncertainty about the longer term outlook is preventing a deeper selloff at least for now.

"The unfolding of winter still presents major price risk both to the downside and to the upside should weather be normal or colder than normal," Goldman Sachs said in a report.

Temperatures in the Northeast -- the world's biggest market for heating oil -- are running well above the seasonal norm and may remain so throughout this week, forecasters say.

In the north of Japan, the world's third-largest oil consumer and a major user of kerosene for home heating, the weather should remain normal or warmer than normal for the next two weeks, government forecasts showed late last week.

Although U.S. gasoline inventories are below par, stocks of crude and heating oil are still above year-ago levels, bolstered by hefty imports and reduced demand. Japanese kerosene stocks are about nine percent higher than the five-year average.

Crude oil production from the hurricane-battered Gulf has also recovered to its highest level since late August, when Hurricane Katrina thrashed the region. Output rose to nearly half its 1.5 million barrels per day capacity.

Three refineries accounting for just under five percent of U.S. capacity remain closed following storm damage.

Looking to the very long term future, the International Energy Agency in its World Energy Outlook predicting soaring demand and warned the world must change its energy habits or struggle with choking fumes and a growing dependence on the volatile Middle East for fuel.

To keep pace with demand over the next 25 years, top producer Saudi Arabia and its neighbors would have to spend an annual $56 billion on rigs and refineries or oil prices will race higher, the IEA said.

Failure to spend enough over the next 25 years could slap another $13 a barrel on the projected price of oil.