Updated from 11:39 a.m. EDT
Crude oil prices dropped Tuesday in anticipation of a key Department of Energy report tomorrow, but stayed above $41 a day after closing at a new record high Monday.
The benchmark U.S crude closed down 52 cents, or 1.3%, to $41.20, while gasoline prices, which also closed at a new high on the New York Mercantile Exchange yesterday, fell about 4.1 cents, or 2.9%, to $1.415 a gallon.
Traders said the market was quieter a day ahead of weekly crude oil and gasoline inventory figures from the DOE, which will have an especially critical influence on the market, possibly for the rest of the summer.
Phil Flynn, head trader at Alaron Trading in Chicago, said general estimates called for an increased gasoline inventory of 900,000 barrels."I'm looking for a build in supply, for crude to be down 2 million and gas to be up 3 million," he said. "If we want to stop the bullish run, we need to see a build tomorrow. Any kind of a build will do."
He said prices also fell because the market had more time to absorb the implications of Saudi Arabia's promise to raise production in June. A spate of otherwise minor negative developments about production and supply disruptions drove prices to a record high of $41.72 on Monday, after the benchmark crude Friday closed below $40 for the first time since May 10.
A pipeline bombing in Iraq, a breakdown on Shell Oil's U.S. Gulf Mars drilling platform in the Gulf of Mexico and a scheduled maintenance shutdown in Kuwait combined to fuel a price spike as the market also reacted to the effects of a weekend fire at a Renton, Wash., gasoline pipeline.
Flynn said that while the damage from the pipeline fire could be fixed by the end of the week, the weekly inventory report was particularly critical in advance of the Memorial Day holiday weekend, when many drivers hit the road.
"Now it's all going to come down to inventory numbers," he said. "This has been the season where you're supposed to build gasoline supplies, and it hasn't happened. If it doesn't, you're going to live refiner to gas tank all summer."
Attacks on oil-producing facilities in the oil-rich Persian Gulf region ahead of the peak summer driving season as well as growing demand because of the global economic recovery have made supplies tight. Traders have also factored a so-called "terror premium" into prices. Saudi Arabia, the world's top oil exporter, said it would increase production to 9 million barrels a day, up from its current output of 8.3 million barrels a day. Analysts say that with demand so high, the market is unusually vulnerable to short-term disruptions.
The Saudis have been pressing fellow members of the Organization of Petroleum Exporting Countries to agree to a cartel-wide increase, but OPEC says it won't consider the idea until its regular meeting in Beirut next week.