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Crude falls below $59 on rise in supplies
By Brad Foss
Associated Press
WASHINGTON » Oil prices settled at a seven-month low below $59 a barrel yesterday as rising global supplies, slack demand and a mild Atlantic hurricane season forced geopolitical worries to the backburner.
Crude-oil futures have fallen by more than $4 in the past two days.
The recent plunge in crude has dragged down the retail price of gasoline in the United States, which now averages $2.31 a gallon nationwide, according to the Energy Department. Analysts say pump prices could drop by another dime or so in the weeks ahead.
Several analysts said they expect Nymex oil to continue falling in the near term, perhaps as low as $55.
"For the next three months, there is nothing in the fundamentals that is likely to support (higher) prices except an OPEC production cutback," said Michael Lynch, director of Strategic Energy and Economic Research Inc. of Winchester, Mass.
Yet surprisingly, recent repeated calls by some OPEC members to cut output also may be weighing on crude futures, as it may suggest growing desperation by oil producers to stem a near 25 percent decline in prices in less than two months.
Any meaningful action by the Organization of Petroleum Exporting Countries would have to be taken by Saudi Arabia, the world's largest producer, Lynch said. That said, trimming output could also backfire by signaling to a market worried about tight supplies that the world finally has production capacity to spare, he added.
Indeed, the perception that a supply cushion exists may already be taking hold. Analysts estimate that worldwide surplus production capacity stands at 2.5 million barrels a day, or 3 percent of daily demand.
Societe Generale commodities analyst Mike Guido said that pension, mutual and hedge funds are not out buying energy futures as heavily as they have been in recent years, in part because stock market gains have been improving, but mainly because supply concerns have dissipated.
The Energy Department said last week that U.S. inventories of crude oil stood at 324.8 million barrels, or 5 percent more than last year; inventories of distillate, which includes heating oil, stood at 151.3 million barrels, or 15 percent above year ago levels.
U.S. fuel supplies are "more than ample," he said.
While some OPEC members have attempted to shore up prices by calling for a cutback, or threatening to reduce output on their own, Guido said these moves have not had their intended effect.
"It is telegraphing to the market that they're becoming more desperate," Guido said.