Crude Prices Ease From Highs

Updated from 1:22 p.m. EDT

Crude futures eased Tuesday as traders debated whether political tensions in the Middle East were fully accounted in oil prices. An Energy Department report showing slower growth in Chinese demand contributed to the selling.

After reaching a record high of $63.99 yesterday, oil for September delivery closed down 87 cents to $63.07 Tuesday on Nymex. Gasoline futures fell 3 cents to $1.83.

Oil prices surged Monday after the U.S. Embassy in Saudi Arabia closed due to terror threats. The embassy and U.S. consular offices remain closed for a second day Tuesday.

Iran's reinstitution of its nuclear program despite U.N. and European opposition also ignited concerns over a potential supply disruption from OPEC's second-largest producer.

In its monthly oil market outlook Tuesday, the Energy Department projected Chinese demand growth for 2005 and 2006 of 500,000 barrels a day. That's down from 2004, when demand grew by 1 million barrels a day.

Globally, the department sees demand growth slowing to 2.1% this year and next from 3.2% in 2004.

Traders were also taking positions ahead of Wednesday's U.S. inventory report. The Energy Department is estimated to say that crude levels dropped by 250,000 barrels in the week ended Aug. 5, while gasoline inventories probably fell by 2 million barrels. Distillates stocks, which include jet fuel, heating oil and diesel, are estimated to have risen by 1.2 million barrels.

A multitude of refinery outages in the last few weeks have boosted gasoline retail prices to record levels. News reports count as many as a dozen refinery problems that occurred since July 7, which together process more than 2.5 million barrels a day.

Some say refinery shutdowns have contributed to rising crude oil prices. According to one argument, a shortage in refining capacity has increased the demand for light, sweet crude, because it has less sulfur and is easier to process into lighter fuels such as diesel.