VIENNA (AP) - Crude futures prices fell Monday, briefly sinking below $49 US a barrel, as the U.S. supply of oil grows and institutional investors shift some of their money away from commodities and into equities.
After dropping as low as $48.60 a barrel, light sweet crude for December delivery was down 41 cents at $49.20 per barrel in trading on the New York Mercantile Exchange. Brent crude for December delivery was trading down 68 cents at $45.74 on the International Petroleum Exchange's electronic system.
Production in the Gulf of Mexico has been recovering from its battering by hurricane Ivan in mid-September, boosting U.S. crude supplies and helping prices fall about $6 since closing at a record $55.17 a barrel on Oct. 22 and Oct. 26.
Prices would have to surpass $90 a barrel, adjusted for inflation, to match those set in 1980.
"Part of it is due to the supply coming back on in the Gulf of Mexico. Primarily, there has also been a lack of negative news," said Kurt Barrow of Texas-based energy consultants Purvin & Gertz in Singapore.
Peter Gignoux, a London-based oil adviser for GDP Associates in New York, said he sensed "a shift of money out of commodities" because of the surging U.S. stock market.
As oil prices fell below $50 a barrel last week, the Dow industrials have been up eight of the last nine sessions, while the Standard & Poor's 500 index and the Nasdaq composite index have climbed for nine straight sessions.
"Trading money is coming out of oil," said Gignoux. "Part of the driver is simply the price - if you start coming down, more money will be pulled out."
The U.S. Energy Department said last week that commercially available stocks of crude in the United States rose by 6.3 million barrels to 289.7 million barrels. The market largely ignored a seventh straight week of drops in distillate stocks, which include heating oil, diesel and jet fuel.
Production of heating oil is also expected to grow in coming weeks as refiners complete pre-winter maintenance in time to take advantage of high prices.
Heating oil for December was marginally down at $1.3612 US per gallon while natural gas fell to $7.905 per 1,000 cubic feet in Europe.
However, traders remained edgy over reports that U.S. forces stormed into western Fallujah, Iraq, in what is expected to be a long-term assault on the insurgent stronghold.
Iraq's key exports from its northern pipeline have been suspended because of attacks by saboteurs and militants who have vowed to block supplies, a crucial source of revenue for the country's rebuilding.
Traders are also keeping their eyes on potential supply-side shutdowns in Nigeria, Africa's largest producer, and at OAO Yukos, the Russian oil giant on the brink of bankruptcy because of a government-led assault to claim back taxes.
Underlying these concerns is the limited excess capacity, now around one per cent of the world's daily consumption of 82.4 million barrels. This jeopardizes supply in the event of a prolonged production outage.
China's booming economy has made demand for oil surge. The Organization of Petroleum Exporting Countries is pumping out a record 30 million barrels daily in its attempt to deal with the demand and cool prices.
Despite the stock market rally, analysts warn warned that the continued demand for oil, and the high prices, will crimp global economic growth in 2005.
"Our fundamental view is that prices will remain between $40 to $50 for at least six to eight months until there is an adequate build in excess capacity," Barrow said.
In Britain, the government blamed soaring oil prices for pushing up the cost of goods leaving British factories at the fastest rate in nine years. The Office for National Statistics said Monday the output cost for British products rose by 3.5 per cent in the year to October
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