Bloomberg: Oil Falls a Third Day on Increased U.S. Output, Waning Demand

By Gavin Evans and Sophie Tan

Sept. 25 (Bloomberg) — Crude oil fell for a third day in New York as U.S. producers in the Gulf of Mexico increased output after a storm threat passed.

BP Plc, Royal Dutch Shell Plc and other oil companies have so far restored about 70 percent of the production shut last week when a tropical depression formed in the eastern gulf, according to government records. A report tomorrow will probably show U.S. crude stockpiles declined last week because of the closures and as refiners slowed imports during plant maintenance.

“Some of the weather premium is coming out of the market,” said Tom Hartmann, commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. “There was some production shut in. With that coming back and with nothing threatening on the horizon, $80 is a little bit expensive.”

Crude oil for November delivery fell as much as 73 cents, or 0.9 percent, to $80.22 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was $80.47 at 1:01 p.m. in Singapore.

The contract dropped 67 cents, or 0.8 percent, to $80.95 a barrel yesterday. October oil reached $83.90 a barrel on Sept. 20, the highest since the futures were introduced in 1983.

The Gulf of Mexico accounts for about a quarter of U.S. oil production and half the nation’s refining capacity.

Offshore output in the region was down by 251,285 barrels a day, or 19 percent, midday yesterday, according to the U.S. Minerals Management Service. At the peak of the evacuations on Sept. 21, as much as 814,578 barrels, or 63 percent, of the region’s daily total was halted.

Price Outlook

“We can’t find any factors that might push crude oil prices higher since the hurricane didn’t happen,” said Hirofumi Kawachi, energy analyst at Mizuho Investors Securities Co. in Tokyo.

Brent crude oil for November settlement declined as much as 69 cents, or 0.9 percent, to $78.22 a barrel on the London-based ICE Futures Europe Exchange. It was $78.45 at 12:55 p.m. Singapore time.

The U.S. is the world’s largest oil consumer. The Energy Department’s weekly stockpile report tomorrow will probably show the nation’s refining rates fell for a third time as companies shut units for maintenance before the peak winter demand period.

Plant utilization probably fell to 88.6 percent of capacity last week, the lowest since April, according to the median estimate from a Bloomberg News survey of 13 analysts.

Oil, Fuel Stockpiles

Oil stockpiles probably dropped 2.1 million barrels, the 11th decline in 12 weeks, based on the survey. Inventories held 318.8 million barrels a week earlier, 7.4 percent more than the five-year average for the period.

“Two million barrels, that would be the smallest draw in about three weeks,” Altavest’s Hartmann said. “The backwardation is weakening” and oil may fall back to $75 “pretty quickly,” he said.

New York oil prices became backwardated, showing investors are paying a premium for early deliveries, in July. Commodity markets often trade in contango, with higher prices for later dated contracts reflecting holding and storage costs.

The near-term premium for oil is reducing with the passing of the peak U.S. gasoline demand period and as the end of the hurricane season nears. November oil posted the largest declines yesterday, with prices for contracts from June forward rising.

Storms, Products

September is the busiest month of the Atlantic hurricane season and accounts for about a third of all storms reported annually, according to National Hurricane Center records.

The center is tracking three low-pressure weather systems in the Gulf of Mexico, the Caribbean and the Atlantic that may strengthen to tropical depressions in coming days.

The largest lies about 1,700 miles (2,700 kilometers) east of the Southern Windward Islands. It is likely to become a tropical depression during the next 12 hours, the center said in an advisory posted on its Web site at 5:30 p.m. in New York.

Gasoline for October delivery fell for a third day, losing 1.34 cents, or 0.6 percent, to $2.0700 a gallon in after-hours trading in New York. Heating oil dropped 1.26 cents, or 0.6 percent, to $2.2218, after falling 1.1 percent yesterday.

U.S. gasoline supplies were probably unchanged last week and distillates probably rose by 1.2 million barrels, the 10th straight increase, based on the survey.

U.S. distillate stockpiles, including heating oil and diesel, held 135.5 million barrels on Sept. 14, 1.7 percent more than the five-year average for the period. Supplies of heating oil, now subject to tighter restrictions on its use, held 43.3 million barrels, 24 percent less than the five-year average.

To contact the reporters on this story: Gavin Evans in Wellington at [email protected] ; Sophie Tan in Singapore at [email protected] .

Last Updated: September 25, 2007 01:07 EDT

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