OiL stocks: Oil prices dip after three-dollar slide

World oil prices fell only slightly on Tuesday, a day after sliding by around 3.5 dollars, as traders forecast weaker energy demand owing to economic troubles affecting the United States.

In London, the price of Brent North Sea crude for September delivery eased four cents to 71.13 dollars per barrel. New York’s main futures contract, light sweet crude for delivery in September, fell 26 cents to 71.80 dollars per barrel. The New York contract had soared to an historic high of 78.77 dollars last Wednesday on news of sliding crude stockpiles in the United States, the world's biggest consumer of energy.

But a weaker turn for the U.S. housing sector has since rattled global financial markets and there are concerns that the slowdown could dampen economic growth and reduce demand for oil.

Market participants are concerned about slowing demand in the top consumer, especially after a report showed weaker than expected jobs growth in the United States (last Friday), further dampening hopes for a soft landing for the country’s economy,” Sucden analyst Michael Davies said.

It seems that, contrary to many previous views, troubles in the sub-prime mortgage market are spilling over into other sectors, including commodities and energy, as investors become increasingly risk averse and pull funds out of the market to protect profits, or cover losses,” he added.

Markets on Tuesday were awaiting the latest U.S. interest rate decision and the Federal Reserve’s assessment of U.S. credit problems.

“Some people are looking for some reason to liquidate (oil contracts) and the trouble in the U.S. sub-prime market is one of them,” said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

“Most traders now feel that market trends could be changing from the upside to the downside. People don’t want to take fresh positions ... They must cut positions to avoid further downside risks,” he said.

Emori added that for the short term, prices could find psychological support at 70 dollars per barrel.

Oil prices at 78 dollars are overvalued against fundamentals (of supply and demand),” he said.

Crude futures have retreated by nearly seven dollars in a week since New York oil hit its all-time high. Oil prices rose by more than 20 percent during June and July on concerns over rising geopolitical tensions, falling U.S. crude stocks, growing U.S. demand for motor fuel and expectations that crude demand will rise strongly this year, according to analysts.

These expectations were prompted in part by the International Energy Agency, which has raised its 2007 oil demand forecasts.

The IEA has consistently called on OPEC to increase production but the oil cartel has said such a move would have no effect on prices. The Organization of Petroleum Exporting Countries argues that the recent surge in oil prices is not linked to a lack of crude
Via: Teheran Times