Oil prices fall below $46, though market tension persists

[Wnghs2007]

WASHINGTON — Oil prices pulled back for a third consecutive day Tuesday, falling below $46 a barrel, as geopolitical concerns that had brought the market to a boil in recent weeks appeared to cool off.

That said, even analysts who believe the current supply-demand balance is not as dire as today's price levels suggest cautioned against declaring the end of the bull market.


"I would not make too much out of two to three consecutive down days, particularly as modest as they've been," said Tom Kloza, director of Oil Price Information Service, a Lakewood, N.J., provider of industry data.

Light crude for October delivery fell by 33 cents to $45.72 in early trading Tuesday on the New York Mercantile Exchange.

Crude futures settled at $48.70 on Thursday — the highest Nymex settlement on record. When adjusted for inflation, oil is some $10 below the level it was leading up to the first Gulf War.

Although Kloza was reluctant to say oil prices had peaked, he said: "I think the big bull market is getting old. It's getting into its last couple of innings at the very least."

Phil Flynn, an analyst at Alaron Trading Corp. of Chicago who has been one of many market observers fearful of supply disruptions, said Tuesday "the market was a little bit ahead of itself."

But Flynn believes oil prices will stay in the mid-$40 range so long as tensions in Iraq remain high and the fate of Russian oil giant Yukos remains unclear.

Cambridge Energy Research Associates, a Cambridge, Mass.-based consulting group, said in a recent report that "as long as market psychology is dominated by fear of a supply disruption, $50 oil remains a very credible possibility."

CERA said it would take the removal of 500,000 barrels to 750,000 barrels of oil per day — for several weeks — to push prices above that level.

Traders have repeatedly expressed worries about the threat of sabotage against Iraqi oil infrastructure and the possibility that Yukos' productivity could fall due to the Russian government's efforts to collect $3.4 billion in back taxes.

Iraq-related concerns were muted somewhat Monday after reports that oil exports there to the Turkish Mediterranean port of Ceyhan had resumed at a rate of 400,000 barrels to 450,000 barrels a day.

On Monday, Yukos reduced its crude output forecast for the year by about 4.5 percent. But traders said markets were soothed somewhat by comments made late Monday by Russian President Vladimir Putin, who told President Bush that Russian oil companies are increasing production and exports and will continue to do so.

"I think we were long overdue for a selloff," said Mike Fitzpatrick, a trader at Fimat USA in New York.

But Fitzpatrick and other traders said there is only limited excess supply capacity worldwide and that this would keep pressure on markets unless there is a significant drop in demand or rise in output.