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Oil Falls to Five-Week Low

Front-month crude loses $2.01 a barrel.

Updated from 12:06 p.m. EST

Oil prices sank to a five-week low Tuesday as traders looked past overseas tensions and bet on another rise in tomorrow's update on crude inventories.

Light, sweet crude for March delivery closed down $2.01, or 3.1%, to $63.10 a barrel on the Nymex. Oil was last this low on Dec. 30, at $61.04. Prices dipped in advance of a likely 1.5 million to 2.5 million barrel increase in oil stocks in the Energy Department's weekly supply report, which comes out tomorrow.

Traders appear also to have digested the risks related to Iran's standoff with the West over its nuclear activities.

Iran said last week that it would not tie its petroleum exports to the actions of the International Atomic Energy Agency, which referred Iran to the U.N. Security Council over the weekend for possible sanctions. Iran has retaliated and said it would bar U.N. inspections and restart uranium enrichment.

Prices will likely remain volatile until the U.N. Security Council meets March 6 to discuss what actions it should take against Iran. Many analysts expect oil prices to remain high and point to rising open interest, or the number of outstanding contracts held at the end of each day. For the week ended Jan. 31, open interest rose 4.7% from the previous week to 951,012, according to the Commodities Futures Trading Commission. Hedge funds and other speculators also increased their long positions, or gambles that prices will rise, by a net 5,865 positions for the week ended Jan. 31.

Crude prices are up 3.4% this year as traders fret about rebel attacks in Nigeria, which have trimmed production there by 10%, and the Iranian nuclear standoff. Crude inventories are already tight because of growing demand from developing Asian economies, and lower production in the Gulf of Mexico.

High oil prices have boosted the earnings of energy companies, with

BP's

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fourth-quarter earnings rising over 22% to $3.68 billion. Total revenue for the quarter climbed 21% to $66.1 billion. Shares of BP lost 3.8%, or $2.71, to $67.26.

Anadarko Petroleum

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saw quarterly earnings soar 116% to $874 million, excluding $1 million in preferred stock dividends, for $3.73 per diluted share. Revenue for the quarter rose 39% to $2.2 billion. Anadarko shares dropped $3.67, or 3.5%, to $101.92.

Occidental Petroleum

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said its fourth-quarter profits rose more than 50% from a year ago to $1.15 billion, or $2.80 a share, compared with $742 million and $1.83 a share for the fourth quarter of 2004. Sales for the fourth quarter rose to $4.33 billion from $3.08 billion last year.

Shares of Occidental dipped $4.34, or 4.6%, to $89.65 Tuesday.

Despite predictions of a snowstorm this weekend in the Northeast, which would typically drive up heating fuels, natural gas and heating oil were both falling in early trading. Traders say cold weather must last seven to 10 days before they'll bid up prices. Natural gas fell 13 cents, or 1.7%, to $7.85 per million British thermal units, a new six-month low. Heating oil declined 7 cents, or 4%, to a five-week low of $1.69 a gallon.

"Apparently, the market does not believe a turn to colder temperatures will boost heating demand enough to make a significant dent in supplies," said John Kilduff, senior vice president of the Energy Risk Management Group at Fimat USA in New York. "Obviously some other supply disruption may have to occur to take the pressure off prices."

High natural gas supplies, which are 14% above last year and 28% above the five-year average, could be adequate to cover a short spell of cold weather, but may not be enough if temperatures are low for a lengthy period. More than 16% of the Gulf of Mexico's gas production is still offline due to hurricane damage and that lost output could drive up prices on cold weather.

The warm weather is providing some relief to homeowners. Since last month, the Energy Department has lowered by 8% its estimate of how much it will cost to heat a home with gas this winter, to $920. Still, the figure is 24% above what it cost last winter.

Distillates, which include heating oil, are down by 200,000 barrels, or less than 1%, compared to last year, and would also be hit hard in the face of low temperatures. Analysts' supply estimates range from a drawdown of 100,000 barrels to an increase of 900,000 barrels.

Low seasonal demand and projections of a 1.3 million-barrel build in supplies pushed the price of unleaded gasoline down 5 cents, or 3%, to $1.59 a gallon. Unleaded was last at $1.59 a gallon on Dec. 28.