Oil prices fall weather woes, big supply

Oil prices fall weather woes, big supply

	Published : Thu, 11 Jan 2007 18:24 By : Agencies Print this Story

NEW YORK (AFX) - Oil prices fell below $54 a barrel Thursday, as funds resumed bailing out of the energy markets on forecasts of warmer weather in the United States that could leave the country's heating fuel supplies barely touched this winter.

The commodity has fallen more than 11 percent since the beginning of the year, a drop that was kindled Wednesday by U.S. government data that showed a larger-than-expected increase in domestic inventories of gasoline and heating oil.

Still, the energy markets were marked by some indecision Thursday: crude dropped to below $53 a barrel in pre-market electronic trading, rose to nearly $55 a barrel in morning trading, and then fell again. Factors that could cause oil to rise again are the possibility for escalating tension in the Middle East, and rival weather forecasts that are predicting colder weather to come.

'Trying to predict the weather's like trying to figure out this wacky market right now -- it's very volatile,' said Alaron Trading Corp. analyst Phil Flynn.

Light, sweet crude for February delivery dropped 27 cents to $53.75 in midday trading on the New York Mercantile Exchange. The contract had fallen $1.62 on Wednesday to end at a 19-month settlement low of $54.02 a barrel.

The National Oceanic and Atmospheric Administration said Thursday that it expects warmer-than-normal weather to continue through March.

Adding to the slide Thursday was the return of oil shipments through Belarus to other parts of Europe after tensions eased between the country and Russia, as well as the overriding belief that the Organization of Petroleum Exporting Countries won't announce another production cut just yet to stanch the market's drop.

Brent crude for February delivery dipped 24 cents to $53.45 a barrel on the ICE Futures exchange in London.

Heating oil futures were down less than a cent at $1.5238 a gallon.

Gasoline futures fell less than cent to $1.4235 a gallon. U.S. gas prices at the pump have been slowly falling, and are now at an average of $2.281 a gallon.

Natural gas prices dipped about 10 cents to $6.652 per 1,000 cubic feet, after the U.S. Energy Information Administration said natural gas in storage fell by 49 billion cubic feet -- around what most analysts were expecting.

It's hard to say where the oil market is headed: back up to the $60-a-barrel level, where it had been hovering since September until recently, or down to the $40-a-barrel levels of two years ago.

Large speculators, mostly commodity funds, have been betting prices will fall, while commercial accounts -- companies that deal with oil in their business and use the market to hedge losses -- are largely betting on a rebound.

Last week, large speculators added more than three times as many short positions (bets that prices will fall) than long positions (bets that prices will rise), and commercials added nearly twice as many long positions as shorts, according to Nymex open interest data.

'Funds seem to be selling as aggressively as they once had bought. They have accumulated a large line of shorts, and it continues to grow,' wrote Peter Beutel of Cameron Hanover in a research note. 'Commercial accounts were buying, but they also sold new shorts. There was no long liquidation and that could lead to huge losses for longs who have not yet taken losses. They seem to have doubled up their long positions, which could be deadly.'

The pull-out of investment fund money has also led to a drop in the broader commodities market this year -- industrial metals such as copper, and precious metals including gold, have fallen since the year began.

'The financial market is rebalancing its portfolio and shifting money out of commodities. Oil has been plunging together with metals,' said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Crude oil's steep decline has spurred predictions of further losses and even an end to the eight-year bull market, which led oil from a low of $10.35 a barrel in 1998 to a record high above $78 last summer.

Associated Press writers George Jahn in Vienna and Derrick Ho in Singapore contributed to this report.