Oil steady at $127


Posted at Jun 02 2008 10:12 AM | Updated as of Jun 02 2008 06:12 PM


SINGAPORE - Oil prices were little changed below $128 a barrel on Monday, with traders tracking the dollar for direction as fleeting Tropical Storm Arthur marked the start of the Atlantic hurricane season, shutting two Mexican oil ports.

US light, sweet crude oil futures dipped 14 cents to $127.21 a barrel by 2325 GMT. Prices fell by nearly $5 last week as traders took profits from the previous week's record high above $135 on concerns over demand.

Oil managed modest gains on Friday, as the dollar's recovery stalled. The dollar inched down against the yen early on Monday, but market fundamentals also vied for traders' attention.

Tropical Storm Arthur became this season's first in the Atlantic at the weekend, opening a June-November hurricane period that forecasters expect to be more active than usual, threatening US and Mexican oil facilities.

Although it quickly weakened into a tropic depression, Arthur forced authorities to shut two of Mexico's three main crude oil ports as a precaution. The three ports ship about 80 percent of Mexico's crude exports, most of which goes to US refineries.

State oil monopoly Pemex says its export volumes are rarely hurt by temporary port closures, as it reschedules delayed shipments once the weather clears.

"In the near-term I think we'll be looking at issues around supply, the potential for disruption in key regions," said Gerard Burg, commodities analyst at National Australia Bank, noting the market will be more sensitive during the summer driving season.

"The peak (of hurricane season) isn't until September/October but obviously that'll be a concern later into the third quarter."

Off peaks

Oil hit an all-time high of $135.09 a barrel last week, driven by rising flows of cash from investors and concerns supplies will struggle to match demand longer term, but a series of fuel prices hikes across Asia and protests in Europe this week shifted focus to the potential for weakening consumption.

Demand in consuming nations such as the United States and Britain has already showed signs of faltering under the weight of rising fuel costs, and some analysts are concerned demand in some Asian countries could be hit as governments cut subsidies.

While the world's number-two consumer China is resisting raising prices until after the August Olympics, other countries including Taiwan, Indonesia and Sri Lanka have been forced to hike pump rates as governments struggle to fund subsidies.

India is expected to raise prices slightly this week.

With the economic outlook shaky and demand for oil under pressure, OPEC has resisted calls to pump more crude, saying that the weak dollar, speculations and other factors -- not a shortage of supply -- are behind the one-third surge in prices this year.

OPEC President Chakib Khelil reiterated on Sunday the group would not make a decision on output policy ahead of its next meeting in September.

Iraq's oil production rose to a post-war high of over 2 million barrels per day (bpd) in May, Oil Minister Hussein al-Shahristani told Reuters in an interview.

Oil traders are also bracing for the possibility of more surveillance of their markets from US regulators, under political pressure to stem the rise in prices, a move they fear may shake some speculators out of the market.

The Commodity Futures Trading Commission said last week that it was investigating oil-market trading and beefing up reporting requirements. The New York Times reported on Saturday that the CFTC will unveil policy changes next week.

Crude oil speculators on the New York Mercantile Exchange cut their net long positions in half last week as prices began to fall, according to CFTC data. Net crude long positions fell to 25,867 in the week to May 27, from 50,060.