Oil Ends Volatile Session Flat

The Nymex crude contract finishes down 6 cents to $48.61.
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Updated from 1:33 p.m. EDT

Oil prices staged a late recovery from early lows Monday, finishing the day little changed after sending energy-related stocks to another volatile session.

After touching $48 earlier, June crude closed down just 6 cents to $48.61 a barrel on Nymex. Gasoline futures fell about 1 cent to $1.40 a gallon, about 20% below the all-time high of $1.74 reached on April 1 this year.

The Amex oil Index, which has plunged about 8% since April 4 when oil prices hit their record high, fell 1% Monday.

Exxon Mobil

(XOM) - Get Report

, which has lost more than 6% since Wednesday, fell 0.8% Monday. Elsewhere,

Chevron

(CVX) - Get Report

dropped 1.5%,

ConocoPhillips

(COP) - Get Report

decreased 2.4%, and

BP

(BP) - Get Report

declined 0.3%.

"It looks like some funds have come under pressure lately, especially hedge funds with lots of leverage that got overextended," said Peter Schiff, a broker at Euro Pacific Capital who also invests his own money. "If you are a short-term investor in this market, then this kind of correction would have you running for the exit,"

Still, says Schiff, for longer-term investors the declines could be an opportunity. "I would definitely consider buying Exxon shares if they hit $50," he said. "I missed it the last time it was down this much."

Among energy-related sectors, refiners saw particularly heavy selling, although some pared their losses toward the close.

Valero

(VLO) - Get Report

, which has seen its shares lose 18% since announcing a deal to buy

Premcor

(PCO)

on April 27, was recently down 96 cents, or 1.6%, to $60.80.

The weakness is the result of a shrinking profit margin between refined and unrefined oil, said John Meloy, an analyst at Netaxis Bleischroeder. Spreads between Mexican Maya sour crude and West Texas Intermediate sweet crude were as much as $18 before the merger was announced. They're $10 or $12 today.

"Premcor is highly leveraged to the Mexican Maya crude. At this point in time, with the shrinking crack spread, the acquisition doesn't seem as a smart move," Meloy said. "But it is important to understand the refining business is highly volatile, where you can see euphoria and despair in a matter of a month. I don't suggest people look at a specific point in time when judging this merger," he said.

Tesoro

(TSO)

, another refiner, lost $1.39, or 3.7%, to $36.57. Though less exposed to sour and sweet differentials, it goes along with the rest of the refining sector as being "economically sensitive," Meloy says.

Over the weekend, OPEC President Sheikh Ahmad al-Fahd al-Sabah said the cartel would continue to supply more than 30 million barrels a day, exceeding its formal quotas,

Reuters

reported. Sheikh Ahmad also said $40 a barrel was an acceptable price for a benchmark basket of crude oil, about $6 below the current price.

Crude inventories have been rising steadily in the U.S., propped up by growing imports from the Middle East. OPEC has been working to keep oil shipments to the U.S. high after oil came close to $60 a barrel last month.

Prices have already come down more than 17% from their April high of $57.28 a barrel. Many analysts expect tight supply and demand fundamentals to resurface by the fourth quarter.

Most analysts and economists now believe there's enough gasoline available to supply American motorists this summer. Concerns have shifted to the fourth quarter, when demand for fuels usually peaks ahead of the winter. Until then, oil could be range-bound.

Another factor pressuring prices is the strengthening dollar. The U.S. currency surged to a seven-month high against the euro Monday, making oil more expensive for nondollar-denominated countries, possibly curbing their purchasing power.

"The recent strengthening of the U.S. dollar appears to have had an influence on oil prices," wrote Bank of America analysts James Wicklund in a note. "With OPEC oil prices denominated in U.S. dollars, the recent upward increases in its relative value should benefit crude suppliers, perhaps allowing for OPEC to support lower price targets should further increases continue."

On the natural gas front, a report released Monday by the brokerage Raymond James shows natural gas supplies in the U.S. are trending downward, with U.S. publicly traded companies showing a year-over-year production decline of 1.3% for the first quarter of 2005.

" The industry is now at virtually 100% utilization of onshore gas rigs...Going forward, constraints on rig availability are likely to become more noticeable, and gains in efficiencies should slow. Meanwhile, the quality of prospects that are being drilled is diminishing, and organic decline rates for the industry continue to rise. This means that the U.S. gas supply picture remains quite constrained," the report said.

The report said that should oil prices stay around the $50 a barrel level, natural gas prices could increase to $8 per thousand cubic feet. Natural gas futures were recently down 10 cents to $6.44 per thousand cubic feet.

Meanwhile, shares of the major oil producers have been hit by plummeting oil prices in an apparent sell-off.

In corporate news,

Cooper Cameron

(CAM)

, which manufactures oil and gas pressure control equipment for drillers, won a $340 million deal to supply

Total S.A

(TOT) - Get Report

, with subsea systems for a 44-well subsea development project offshore Nigeria. Cameron will provide supplemental installation and support services through 2008, bringing the total value of the contract to approximately $415 million. Cameron share rose 1.43% to $56.18.