Updated from 11:06 a.m. EST
Crude prices eased further Tuesday as traders brought their focus home to the domestic supply front.
Crude for delivery in March fell $1.04 to $67.06 a barrel as traders anticipated another round of gains in domestic crude supplies in a report scheduled for Wednesday. Oil prices are down from a recent high of $69.20 a barrel, reached in overnight trading Monday amid concerns about a nuclear standoff with Iran and production disruptions in Nigeria.
"The market is going strong. Sometimes you can have $3 to $4 rallies for no apparent reason, but not today," said Jerry Saccente, an oil and natural gas trader with ABN Amro in New York.
Traders say prices could keep falling Wednesday if inventories do as expected and rise. Analysts in a
survey expect crude inventories in the Energy Department's storage report to rise by 1.3 million barrels, its third consecutive weekly rise, because imports remain high and refiners are shut down for seasonal maintenance. When refiners operate at lower volumes, crude supplies increase. After hurricanes shuttered much of the Gulf of Mexico's petroleum production, refiners delayed their usual maintenance to help the country recover.
Warm weather in the Northeast, the country's largest user of heating fuel, has driven down prices for heating oil and natural gas and boosted supplies. Natural gas picked up 11 cents to $8.68 per million British thermal units but is still hovering around five-month lows. Heating oil was off 2 cents at $1.81 a gallon, and unleaded gasoline was down 5 cents to $1.74 a gallon.
Analysts are calling for a 938,000-barrel gain in distillate stocks, which include heating oil, and a 1.6-million-barrel rise in gasoline inventories, according to the
On Monday, oil prices eased from five-month highs after OPEC officials played down the need for production cuts at an upcoming meeting. Saudi Arabia's oil minister said OPEC would probably maintain production at its meeting on Jan. 31 in Vienna. Last month, several OPEC members warned they would cut output to prop up prices in the second quarter.
"Fundamentals today are in excellent shape and inventories are at reasonable levels, supply plentiful, demand is well met by supply," Ali al-Naimi said on Indian news channel NDTV 24x7, according to
. "There is no reason why prices should be rising, other than these tensions."
Oil prices have climbed 11.5% since Iran said it would restart nuclear research on Jan. 3. Although Saudi Arabia and Kuwait were able to make up for the shortfall in oil production when the U.S. invaded Iraq in 2003, there is now little spare capacity because of growing demand from developing Asian economies. Iran pumps 3.9 million barrels of oil per day, about double Saudi Arabia's spare capacity.
Disruptions in Nigerian oil supplies have also propped up high energy prices. Production has fallen 10% as militants have stepped up their attacks on oil pipelines and platforms over the past month. On Tuesday, gunmen attacked the offices of the Italian oil company Agip, killing nine people and stealing an unidentified amount of money. Violence has grown in Nigeria, the fifth-largest crude supplier to the U.S., as rebels demand a cut of the country's oil wealth.
Crude's recent spike may be temporary, but the energy market believes high oil prices are here for the long haul. The February 2007 oil contract is trading at $70.15 a barrel, higher than current spot prices.
Indices of oil service and exploration companies have also gotten a boost from the recent run-up in prices. The Philadelphia index of oil service company stocks has jumped 14% this year and 53% in 2005, while the American Oil index, which includes 13 exploration companies, has climbed 9% in January and 41% last year.
In trading Tuesday, big oil companies were more or less unchanged.
fell 0.4%, or 25 cents, to $60.95;
lost 21 cents or 0.3% to $70.54;
dipped 16 cents, or 0.3%, to $62.05, and
declined 43 cents, or 0.7%, to $64.48.
report their fourth quarters tomorrow morning.