Oil futures prices fall in an 'abstract' market
Speculation and weather fed a fast rise, but lower demand and an increase in production may cause a turnaround.
NEW YORK - Oil futures fell yesterday for the first time in 10 sessions after a rally that has driven prices to new highs that some analysts say are unrealistic.
"It used to be a painting by a realist, now it's abstract," Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service, said of recent trading in New York Mercantile Exchange oil futures.
Futures were buffeted all day as some traders sold to lock in profits and others bought on worries about a tropical storm.
Gasoline futures also fell as power was restored to some of the refineries shut down after Hurricane Humberto hit Port Arthur, Texas, on Thursday. But natural gas rallied as Tropical Storm Ingrid strengthened in the Atlantic.
Oil's rapid rise from $69 a barrel less than a month ago has been propelled by falling domestic oil inventories, concerns about growing demand, and speculative buying by large investment funds. But several analysts are now arguing that there are no fundamental reasons supporting oil's rally.
In recent days, the Organization of Petroleum Exporting Countries has said it would boost output, which should alleviate some of the supply concerns, and the International Energy Agency has cut its global demand forecasts. Oil inventories are falling in the United States, but remain at record levels. And gasoline demand has ebbed with the end of the summer driving season.
Yesterday, light, sweet crude for October delivery fell 99 cents to settle at $79.10 a barrel on the New York Mercantile Exchange after rising earlier to $80.36, a record. October gasoline fell 1 cent to settle at $2.0364 a gallon.
Many analysts blame oil's recent rise on speculative investing. Kloza noted that nearly 600 million barrels of benchmark West Texas crude oil were traded Thursday on the Nymex, but that actual daily production of West Texas crude is only about 200,000 barrels.
Tropical weather has also been widely cited as supporting prices. Humberto's rapid growth in the Gulf and shuttering of three refineries drove gas futures higher Thursday. Yesterday, power had been restored to at least two of the affected refineries, and officials said they could be back at full capacity by next week.
But Ingrid strengthened yesterday morning, driving October natural-gas futures up 25 cents to settle at $6.279 per 1,000 cubic feet.
Analysts were as perplexed by Ingrid's effect on prices as they have been by oil's rally, given forecasts that the storm appears headed well to the east of Florida, away from critical oil and gas infrastructure in the Gulf of Mexico.