OIL PRICES fell nearly a dollar to below $109 a barrel yesterday, weighed down by slowing demand in the US and other consuming nations and because signs indicate that the US oil sector will recover quickly from Hurricane Gustav.
US crude traded down 96 cents at $108.75 a barrel by the close of European trade after settling on Tuesday below its 200-day moving average, a key technical level, for the first time since May 2007. London Brent crude fell 50 cents to $107.84 a barrel.
Prices have fallen by more than $6 since Friday after Hurricane Gustav proved to be less devastating than feared.
Initial checks on US energy installations in the Gulf of Mexico showed little damage and the Louisiana Offshore Oil Port - the nation's only deepwater port - is expected to resume operations in the next couple of days.
Companies had closed 14 refineries and shut down all of the 1.3 million barrels per day of oil production in the gulf and 95.4 percent of the region's natural gas output, but now recovery in output could come in days.
Now that the storm has passed, analysts said, slowing oil demand in the United States and other consumer nations would continue to depress oil prices, which have dropped from a record of $147.27 on July 11th.
The fall in oil prices alongside investor gloom about the outlook for economies in the euro zone and the UK pushed the dollar relentlessly higher yesterday, and it touched fresh highs against the euro and sterling. However, oil's drop offered little support to US or European equities as concerns about the financial sector returned to spook investors.
On the currency markets, the euro briefly fell below $1.44 to an eight-month low, while sterling hit its weakest level since April 2006. The dollar has now gained about 9 per cent against the euro since hitting a record low on July 15th.
Surging oil demand in emerging economies such as China and India underpinned a six-year rally in crude prices which sent prices up sevenfold at their peak. Further strength this year came from a rush of cash from investors buying commodities as a hedge against inflation and the weak dollar.
But the dollar has since hit an 11-month high against a basket of major currencies.
Christopher Bellew, of Bache Commodities, said that the market remained bearish in the short term. "We have a strong dollar and weak hurricanes," he said.
Any disruption caused by Gustav will not be fully reflected in US inventory data until next week. Analysts yesterday forecast that stockpiles of crude rose 200,000 barrels last week, gasoline supplies fell 1.4 million barrels and distillates rose 500,000 barrels. - ( Financial Times Service/Reuters)
