Skip to main content

Oil Closes Below $60 a Barrel

The front-month contract is down more than 10% this month.

Updated from 11:53 a.m. EST

Oil prices closed below $60 a barrel for the first time in two months Tuesday as expectations of rising crude supplies in an Energy Department report tomorrow outweighed any geopolitical concerns.

Light, sweet crude for March delivery lost $1.67, or 2.7%, to settle at $59.67 a barrel on the Nymex, as traders focused on plentiful inventories and disregarded reports that Iran had restarted its nuclear development program. The easing of world tensions, falling demand, and high inventories have driven down the price of oil more than 10% this month.

Crude inventories are 10.7% higher now than last year, and are expected to post another increase in Wednesday's government supply report. The markets closely watch the Energy Department's weekly releases because they give a good indication of supply and demand. Estimates are for a 1 million-barrel rise in stocks, according to analysts polled by

Dow Jones




reported Tuesday that Iran said it started enriching uranium last week, ostensibly to produce more electricity. The West fears the move is instead a ploy to develop a nuclear weapon. However, Tehran said it would send a delegation to Russia on Feb. 20 to discuss plans to enrich uranium in that country. Tehran had postponed a similar meeting this week.

Prices are also declining, traders say, because hedge funds are bailing out of the market because crude is too expensive

"The assumption that funds, despite the piles of money behind them, will continue to shovel money into commodities seems to have been shaken over the last few days, and rightly so, in our view, given that many markets were overbought," said Edward Meir, an energy analyst with Man Financial in Darien, Conn.

Hedge funds and other speculators overwhelmingly reversed their bets on where crude prices are going for the week ended Feb. 3. There were 137,673 long positions, or bets that prices will increase, down 19,330 from the previous week. Short sales outweighed long bets last week by 539 positions, according to the Commodity Futures Trading Commission, which regulates the domestic markets for commodity futures and options.

Warming temperatures and plentiful supplies hammered other contracts Tuesday, driving down natural gas 12 cents, or 1.8%, close to a one-year low of $7.11 per million British thermal units. Heating oil fell nearly 3 cents, or 1.8%, to $1.61 a gallon and is at its lowest level since June. On Monday, natural gas closed at a seven-month low of $7.24 and has now lost 37% this year. Natural gas is used to generate electricity and heat.

Inventories of distillates, which include heating oil, rose 300,000 barrels to 136 million barrels for the week ended Feb. 3, but are projected to fall by 500,000 barrels in Wednesday's report. Distillates are 12% above last year, while heating oil is 24% higher Distillate levels typically decline now as refineries undergo seasonal maintenance.

"If we start to see a slide in distillates, it wouldn't be a cause for alarm, unless it fell below five-year averages," said Chris Ovrebo, a broker with FCStone, a commodity trading company, in Minneapolis.

Robust supplies of gasoline and low seasonal demand were also affecting gasoline futures, which dipped 4 cents to $1.38 a gallon. There is 1.7% more gasoline in storage now than at this time last year and stocks will likely increase by 1.5 million barrels in Wednesday's report, analysts believe.

Scroll to Continue

TheStreet Recommends

Many drilling-related stocks were lower Tuesday after


(RIG) - Get Transocean Ltd (Switzerland) Report

reported a lackluster fourth quarter and warned that earnings in its first and second quarters of 2006 won't be any better. The contractor cited higher operating costs and downtime created by maintenance projects.

Transocean shares fell $5.96, or 7.6% to $72.63, helping drag down the Philadelphia Oil Services index 2.3% and the Amex Oil Index 0.7%. Other stocks under pressure included


(NBR) - Get Nabors Industries Ltd. Report



(SLB) - Get Schlumberger N.V. Report



(HAL) - Get Halliburton Company Report


BJ Services



Shares of

El Paso

(EP) - Get Empire Petroleum Corporation Report

rose 4 cents, or 0.3%, to $12.42 after initially shrugging off investment bank Raymond James initiation of coverage at "outperform." A price target of $17 per share was set.