Oil Prices Trim Early Loss

Updated from 3:19 p.m. EDT

Crude oil prices closed lower for the third session in a row Tuesday, but remained near the psychologically important $40-a-barrel level.

The benchmark U.S. crude fell 10 cents to $39.54, having been down about 1% earlier in the day. Gasoline futures for August delivery shed about 1 cent to $1.285.

Though prices have slipped in recent days, the decline has been modest as traders remain concerned about short-term supplies.

Prices declined early Tuesday after a report by the International Energy Agency said output from members of the Organization of Petroleum Exporting Countries averaged an estimated 28.6 million barrels a day in June, up more than 600,000 from the previous month. The data confirmed speculation that OPEC was widely producing over its official ceiling of 23.5 million barrels a day at the time.

The report also predicted that demand growth would slow in 2005.

Prices touched a one-month high, closing above $40 last week, as traders worried about production in Russia and Iraq as well as the possibility of new terror attacks against the U.S. ahead of the presidential election.

Russia's biggest oil company, Yukos, is embroiled in a tax dispute with Moscow, and there's speculation -- under a worst-case scenario -- that the company might be forced into bankruptcy if pressed to make a massive payment. Yukos has reportedly offered to pay $8 billion to settle the case.

Meanwhile, Iraq is once again struggling to restore exports to a normal level following another set of problems with a pipeline feeding southern export facilities.

Prices have jumped as much as $5 this month, after closing below $36 a barrel for the first time in three months.

OPEC is scheduled to meet July 21 to decide on an increase its official production ceiling of a half-million barrels a day in August. The measure was part of a broader agreement reached at OPEC's June meeting, when it decided to increase official production by 2 million barrels a day in July to 25.5 million. OPEC members have a reputation in the market for cheating on their respective quotas.

At one point recently, oil prices had fallen 15% from their record high of more than $42 a barrel reached the day before OPEC's June 3 meeting.

During May, traders bid up prices on short-term supply concerns triggered by strong global demand and terrorist attacks on oil industry personnel and facilities in the Persian Gulf region ahead of the peak summer driving season in the U.S. and Europe.