AP
Oil Prices Drop Below $80 a Barrel
Friday September 14, 1:24 am ET
By Gillian Wong, Associated Press Writer
Oil Prices Drop Below $80 a Barrel After Record Close in Previous Session


SINGAPORE (AP) -- Oil prices fell Friday amid profit-taking after closing at a record high the previous session on supply concerns.

Light, sweet crude for October delivery lost 29 cents to $79.80 a barrel in Asian electronic trading on the New York Mercantile Exchange in Singapore.

The contract finished Thursday at a record $80.09 a barrel, up 18 cents, and above the previous record close of $79.91 set a day earlier.

Analysts say much of the recent advance in crude prices has been due to buying by large investment funds. The relative weakness of the dollar, which encourages buying by foreign investors, has also played a role.

Oil first traded over $80 a barrel Wednesday after the U.S. Energy Department reported declines in crude and gasoline inventories and a drop in refinery activity, but it ended that session below the psychologically important mark.

"Had that large drop (in crude inventories) occurred on its own, people might have been skeptical about whether that number is real or is it a blip in the data, but given that there have been big falls in the weeks before, that's pushed prices up as well," said Tobin Gorey, a commodity strategist at the Commonwealth Bank of Australia in Sydney.

Gorey said a decision earlier in the week by the Organization of Petroleum Exporting Countries to raise output by 500,000 barrels served as a signal to the market that even the producers reckoned that demand in coming months is expected to be strong enough to absorb the extra output.

"Northern winter demand normally goes up, and clearly the producers in the market think it's going to be pretty robust," Gorey said.

On Thursday, Hurricane Humberto added to the supply concerns by cutting power to several refineries in the Port Arthur, Texas, area. Another tropical system gaining strength in the Atlantic also supported prices.

Despite the gains, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Many analysts are perplexed by the high prices, arguing that they have been driven by a flood of speculative buying. Many believe demand does not support such high prices.

In London, October Brent crude declined 22 cents to $76.90 a barrel on the ICE futures exchange.

October gasoline declined 0.49 cent to $2.0415 a gallon after jumping 3.04 cents Thursday to $2.0464 a gallon as refiners reported production problems after Humberto hit Texas.

The shuttered refineries included Valero Energy Corp.'s 325,000 barrel-a-day facility, Total SA's 180,000 barrel-a-day plant and Motiva Enterprises LLC's 285,000 barrel-a-day refinery.

Exxon Mobil Corp. said its 350,000 barrel-a-day Beaumont, Texas, refinery suffered a minor production outage but remained up and running.

Heating oil futures fell 0.15 cent to $2.2175 a gallon while natural gas rose 2.1 cents to $6.05 per 1,000 cubic feet.