Oil prices were down today at under US$105 (Dh385.65) a barrel as investors weighed supply delays in the Gulf of Mexico against concerns that the US credit crisis will slow global economic growth and hurt crude demand. Light, sweet crude for November delivery was down $1.48 to $104.25 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract fell overnight 88 cents to settle at $105.73.
About 66 per cent of oil production and 61 per cent of natural gas output in the Gulf of Mexico remains shut-in after the passage of Hurricanes Gustav and Ike, according to the US Minerals Management Service. The Gulf area is home to a quarter of US oil production and 40 per cent of refining capacity. Mexico's state oil company said Tuesday it temporarily reduced oil production because US refineries damaged by Ike have cancelled shipment orders.
Petroleos Mexicanos, or Pemex, lowered its daily output by 250,000 barrels a day. The company said it expects production to be back to normal by the end of the week. Pemex produced an average of 2.75 million barrels a day in August, the latest available output figure. Opec's decision earlier this month to cut production by 520,000 barrels a day and militant threats to Nigerian oil operations have added to the supply shortage. Traders are also concerned about the turmoil in the US financial system will impact economic growth and crude demand from the world's biggest economy.
President George W Bush strongly urged Congress to act quickly to pass a $700 billion financial industry bailout, warning Americans in in a speech on Wednesday that failing to act fast risked dire economic consequences such as disappearing retirement savings, rising foreclosures, lost jobs and closed businesses. "Markets hate uncertainty, and this thing is hanging over everybody's head," said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. "I don't think anyone is too keen to take a position in oil either way right now."
With the administration's original proposal facing significant changes in Congress, top House leaders issued an upbeat statement late Wednesday saying there was progress toward revised legislation that could pass. Mr Bush summoned presidential candidates Barack Obama, John McCain and legislative leaders to an extraordinary White House summit in hopes of hashing out a deal. Oil investors are also eyeing the impact the bailout plan may have on the value of the dollar.
Investors often buy crude futures as a hedge against a weakening dollar and inflation. The price of oil "depends on the dollar, it has nothing to do with oil demand and supply," Chakib Khelil, the president of Opec, told journalists at a press conference in Algiers on Wednesday. He said that oil prices would rise if the dollar weakens, as investors would use oil to hedge against the depreciating currency.
The dollar fell slightly in today's morning trading against both the 15-nation euro and the Japanese yen. The euro bought $1.4702; the yen bought $0.0094. In other Nymex trading, heating oil futures for October delivery fell 3.92 cents to $2.9741 a gallon, and petrol prices dropped 1.96 cents to $2.5751 a gallon. Natural gas declined 1.5 cents to $7.664 per 1,000 cubic feet. In London, November Brent crude fell $0.98 to $101.47 a barrel on the ICE Futures exchange. * AP