Oil Falls Below $79 a Barrel

Crude-oil futures were lower Tuesday, slumping at one point below $79 a barrel as Gulf of Mexico producers continued to restore output that was shut in last week by an approaching storm system.

The front-month November light, sweet crude contract on the New York Mercantile Exchange was recently down $1.50 at $79.45 a barrel after falling as low as $78.96. Front-month prices reached an all-time intraday record of $83.90 on Sept. 20. Brent crude on the ICE futures exchange fell $1.41 to $77.50 a barrel.

Questions over whether oil prices are sustainable at more than the psychologically important $80 level and profit-taking after a sharp run-up in prices lately are also weighing on prices. Once prices were unable to hold $80, they dropped quickly, dropping below $79.

"I think the market was a little overvalued when it was trading above $83," said Tony Rosado of IAG Energy Brokers in Fort Lauderdale. He said the market turned downwards overnight after producers continued to bring back production in the Gulf after a tropical depression passed through the region over the weekend, causing little damage to infrastructure. Prices "could easily drop another dollar," he said.

The equivalent of 251,285 barrels a day of Gulf oil production remained shut in Monday morning, the U.S. Minerals Management Service said, down from 814,578 barrels a day that had been shut as of Friday.

The threat of Gulf of Mexico hurricanes will still play on traders' minds, however, after a tropical depression in the Atlantic Ocean was upgraded to Tropical Storm Karen Tuesday morning. The National Hurricane Center said it posed no immediate threat to land.

Traders will also be looking ahead to Wednesday's weekly U.S. inventory statistics put out by the Department of Energy. Analysts are expecting a fifth straight decline in crude oil stockpiles in the data, according to a Dow Jones Newswires survey of analysts.

Crude stocks are seen falling by 1.8 million barrels in the report, according to the average of the analysts' forecasts. Gasoline stocks are seen building by 200,000 barrels, and distillate inventories, which include heating oil and diesel fuel, are expected to gain by 1.1 million barrels. Refinery use is seen dropping by 0.6 percentage point to 89% of capacity.

"The market is awaiting the weekly DOE stats tomorrow to get some sort of market direction," said Nauman Barakat, senior vice president at Macquarie Futures USA. "I feel the downside is limited -- we will see big draws in crude in the stats due to storm disruptions."

Front-month October reformulated gasoline blendstock, or RBOB, fell 3.84 cents, or 1.8%, to $2.045 a gallon. October heating oil fell 4.78 cents, or 2.1%, to $2.1828 a gallon.
Source : http://online.wsj.com