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Oil prices settle at $50.13 a barrel
Updated: 2004-11-02 09:09

Oil futures prices sank to their lowest level in nearly a month Monday on a continuation of the selloff sparked last week by rising U.S. supplies of crude and easing fears about the refining industry's ability to satisfy heating oil demand.

The downward momentum appeared to overshadow concerns traders had about a possible strike in oil-rich Nigeria and a new setback to Russian oil giant Yukos, which was reportedly hit with $10 billion in new tax claims on Monday.

December crude futures declined by $1.63 to settle at $50.13 per barrel on the New York Mercantile Exchange ! the lowest closing price since Oct. 4, when futures settled at $49.91 per barrel. Prices had fallen as low as $49.30 a barrel in intraday trade. In London, December Brent crude futures fell $1.92 to $47.06 per barrel.

"We could move a couple of bucks more on the downside," said BNP Paribas Futures trader Tom Bentz.

Bentz added that worldwide oil supplies remain tight and that, therefore, "I'd be a little cautious" about declaring the beginning of the end of high prices. "The reality is that not a lot has changed fundamentally," he said.

Aaron Kildow, a broker with Prudential Financial Inc. in New York, said Monday's slide was magnified by selling among institutional investors, such as mutual funds, who had to cover earlier bets that prices would rise. Kildow also said that a burst of warm weather in the Northeast may have influenced market psychology.

December heating oil futures plummeted 5.65 cents to $1.4076 per gallon on Nymex, where gasoline futures fell 3.77 cents to $1.2908 per gallon. Natural gas for December delivery dropped 0.5 cent to $8.720 per 1,000 cubic feet.

Last week, oil prices fell from record closing prices on Nymex after the Energy Department said U.S. crude supplies had increased by 4 million barrels to 283.4 million barrels ! roughly double what Wall Street was expecting. Also, data maintained by the Minerals Management Service showed a significant recovery in industrywide oil and natural gas production in the Gulf of Mexico, where operations have been snagged since mid-September due to Hurricane Ivan.

That the market chose to focus last week on rising oil supplies instead of shrinking heating oil inventories suggested a shift in traders' psychology.

China's move to cool its red-hot economy by raising interest rates also eased pressure on oil prices.

While crude prices are still up by more than 70 percent from a year ago, they would need to surpass $90 per barrel to approximate the all-time high, in inflation-adjusted terms, set in 1980. A record Nymex closing price of $55.17 per barrel was reached Oct. 22 and matched Oct. 26.

Prices rose steadily between mid-September and mid-October after Hurricane Ivan caused production outages in the Gulf of Mexico, where more than 26 million barrels of oil output has been lost. Unrest and uncertainty in key producers Nigeria, Saudi Arabia, Iraq and Venezuela have also kept traders on edge.

Underlying the supply fears is the world's narrow cushion of excess capacity, currently at about 1 percent of the global daily consumption of 82.4 million barrels, leaving little breathing space in the event of a production outage.

Oil prices briefly rose Monday morning on word that Nigeria's main labor union had called for a nationwide strike Nov. 16 at the country's largest petroleum producer ! Royal Dutch/Shell Group ! in a protest over local increases in fuel costs. Royal Dutch/Shell opened court action Monday to block the threatened strike but lost a first-round bid for an interim injunction quelling the unions. Nigeria exports around 2.5 million barrels of oil daily.

In Russia, tax authorities raised Yukos' total bill to more than $17.6 billion, the Interfax news agency reported Monday. The Tax Ministry hit Yukos with a fresh bill for 2002 of $6.7 billion, while its biggest subsidiary ! Yuganskneftegaz ! received new claims amounting to more than $3 billion for 2001 and 2002.

"This is easily higher than we had expected in our worst-case scenario," said Ron Smith, an oil and gas analyst at Renaissance Capital.

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