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Prudhoe's Return Hits Crude

Oil drops below $60 as BP's Alaskan field comes back on line sooner than expected.

Updated from 10:32 a.m. EST

Oil prices were back below $60 a barrel Monday after the country's largest oil field returned to full production four months ahead of schedule.

BP's

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Prudhoe Bay field in Alaska is back to its full output of 400,000 barrels per day, the

Associated Press

reported. Estimates had called for the field to reopen fully in February.

In early August, BP shuttered the field's western half after finding leaks and corrosion there. The eastern portion was still pumping about 200,000 barrels per day since then. BP operates Prudhoe Bay for

ConocoPhillips

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and

Exxon Mobil

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.

Light, sweet crude fell $2.39 to settle at $58.36 a barrel on Nymex. Sparked by crude's 4% decline, heating oil, gasoline and natural gas also closed down. The heating oil and gasoline contracts lost additional ground because both of their November contracts expire Tuesday.

Wholesale unleaded gasoline slipped 10 cents to $1.45 a gallon and heating oil lost 9 cents to $1.60 a barrel. Forecasts of warmer weather helped push the price of natural gas futures down by 41 cents to $7.41 per million British thermal units.

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The National Weather Service expects warmer-than-average weather to blanket much of the country, except for the Northeast, over the next 10 days.

Crude prices have been whipsawed this month on speculation of an OPEC output cut, brimming fuel supplies, and signs of an economic slowdown. On Friday, prices shot up to $60.75 a barrel after the British navy sent forces to head off potential attacks on Saudi Arabia's biggest export terminal.

The Organization of the Petroleum Exporting Countries agreed to trim production by 1.2 million barrels a day starting next month, though several members have not said publicly whether they will follow it. Thus far, only Saudi Arabia, Libya, Iran, Kuwait and the United Arab Emirates out of a total of 11 member countries have said they would reduce their crude exports. Some analysts believe the others may not go along with the cut to maintain oil revenue.

OPEC next meets Dec. 14 in Nigeria and may slash production again if crude prices do not stay above $60. Until this month, when prices strayed below $60, the group was content to keep pumping at record levels.

The reduction may take a while to have any effect, since domestic fuel inventories are as much as 14% above last year's levels. As temperatures drop and winter heating demand spikes crude supplies will likely drop and likely boost prices.

The closure of the Louisiana Offshore Oil Port, one of the country's biggest import terminals, sent crude stockpiles plunging by 3.3 million barrels the week before last. The drop stunned analysts, who had expected inventories to climb by 2.8 million barrels, according to a poll of

Bloomberg

analysts.

But inventories are expected to jump by 2.7 million barrels as refiners underwent seasonal maintenance of some of their production units. In the spring and fall, refiners typically shutter some units ahead of the peak winter and cooling seasons.

With fewer refiners online, production of gasoline and distillates, which include fuels like heating oil, likely dropped last week. A 1 million barrel decline in gasoline stockpiles and a 1.4 million barrel drop in distillates are expected in the Energy Department's supply update Wednesday, according to

Bloomberg

.

In stock market action, shares of drilling and refining companies were off 1.7% on the Amex Oil Index. ConocoPhillips,

Hess

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,

Occidental Petroleum

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and

Valero Energy

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were off the most, down from 1.8% to 5.2%.