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 Business News | October 2007 
Oil Falls as Mexican Production Resumes
 John Wilen - Associated Press
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| | Oil drilling platform in the North Sea. Oil prices fell by more than a dollar on news that output would restart in Mexico after a stoppage, but they still remained close to record highs above 92 dollars per barrel. (AFP) |
New York - Oil futures retreated Tuesday on word Mexican oil production is returning to normal and on expectations that a government report will show crude supplies grew last week.
Gasoline prices, however, jumped overnight at the pump and have now risen nearly 12 cents in the last two weeks. Analysts have long predicted that gas prices would have to rise to catch up with crude prices, which have soared 35 percent since August.
The average price of a gallon of gas rose 1.9 cents overnight, to $2.875, according to AAA and the Oil Price Information Service. The cost of oil makes up nearly 60 percent of the price of gasoline. If oil prices continue on their upward track, gas prices could rise even further in coming weeks.
Crude prices have surged in recent months on a mix of concerns about turmoil in the Middle East and news of falling crude supplies at home.
On Tuesday, Mexico's state oil company Petroleos Mexicanos, or Pemex, was expected to resume production of 600,000 barrels of oil a day that was temporarily halted over the weekend due to stormy weather. The production disruption was a driving factor behind crude's jump on Monday to new settlement and trading records above $93 a barrel.
"It looks like the production will resume in a matter of days so it's only a temporary disruption," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Separately, the Energy Department is expected to report Wednesday that crude oil inventories rose slightly last week.
Light, sweet crude for December delivery fell $1.62 to $91.91 a barrel on the New York Mercantile Exchange. Crude prices are near inflation-adjusted highs hit in early 1980. Depending on the how the adjustment is calculated, $38 a barrel then would be worth $96 to $101 or more today.
Other petroleum futures also fell Tuesday. November gasoline futures fell 2.14 cents to $2.306 a gallon, and November heating oil slid 1.31 cents to $2.4515 a gallon.
Natural gas for December delivery rose 11 cents to $8.084 per 1,000 cubic feet on the Nymex on forecasts for cooler weather in the Northeast and Midwest.
In London, December Brent crude fell $1.27 to $89.05 a barrel on the ICE Futures exchange.
Analysts said profit-taking contributed to Tuesday's price declines, as did a decision by the Nymex to lower the amount of money investors are allowed to borrow when they buy oil contracts. This is known as buying on margin; the changes will force investors to pay more money up-front for contracts.
"You have to come up with more money any time you want to buy a contract," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos.
Meanwhile, ministers from Organization of Petroleum Exporting Countries sent conflicting signals about the cartel's plans. An increase in production could send prices lower.
OPEC's president, Mohamed al-Hamli, said the group "will do what we can" to meet changes in supply and demand, adding: "We're concerned about the high level of prices."
But Libya's oil policy head said OPEC ministers weren't discussing any proposals to inject further crude into global oil markets, insisting such a move would do nothing to cool record prices.
Traders on Tuesday were also turning their attention to Wednesday's inventory report from the Energy Department's Energy Information Administration. Oil futures most recent price rally started last Wednesday, when the EIA reported a large, unexpected decline in crude inventories.
Analysts surveyed by Dow Jones Newswires, on average, predict that oil inventories rose by 100,000 barrels during the week ended Oct. 26, though estimates vary widely. Some analysts expect an increase of 2 million barrels, while other expect inventories to fall by 2.6 million barrels.
Refinery use is expected, on average, to grow by 0.5 percentage point to 87.6 percent of capacity, and gasoline inventories are expected to fall by 400,000 barrels. Distillates, which include heating oil and diesel fuel, are expected on average to fall by 1 million barrels.
Associated Press writers George Jahn in Vienna and Gillian Wong in Singapore contributed to this report. |
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