Associated Press
08.26.2004

Oil prices fell for a fifth consecutive day Thursday despite a sharp drop in Iraqi exports after pipelines were sabotaged - evidence that the bull market may have lost some steam.

"It looks like people are in sell mode," said Mario Sanchez, an oil futures broker at ABN Amro in New York.

Light crude for October delivery dipped 19 cents to $43.28 a barrel in midday trading on the New York Mercantile Exchange. In London, Brent crude futures dropped 68 cents to $40 a barrel on the International Petroleum Exchange.

A top oil official told The Associated Press that a sabotage attack on a cluster of about 20 oil pipelines in southern Iraq has cut daily exports from the key oil producing region by half, down to 900,000 barrels.

The news out of Iraq was the kind of information that traders and market analysts had cited in recent weeks to explain the rapid run-up in oil prices. But on Thursday the trend was bucked.

"When I got into the office this morning I saw there was bullish news out there and thought 'Why is this happening?'" Sanchez said.

The answer, according to Sanchez and others, is that oil markets are in the midst of a "technical correction" - in other words, traders and speculators believe prices raced ahead too fast late last week, when crude futures made what seemed at the time to be an unstoppable charge toward $50 a barrel.

Another reason prices may have dropped despite the immediate decline in exports is that the official at Iraq's state-run South Oil Co., who spoke on condition of anonymity, said the damage could repaired in as few as three days.

But the $50 level was never reached. Instead, crude futures settled last Thursday at $48.70 - the highest Nymex settltement price - and have fallen steadily ever since.

On Thursday, OPEC's president said the cartel will discuss raising output at its meeting next month and that he'd like to see oil prices fall "to around $30 per barrel."

Analysts said Thursday that OPEC's $30 a barrel target was probably unrealistic, given the strength of global demand and lack of much excess supply. They said crude prices could rise again toward $50 before the year is up, especially if it turns out to be a cold winter, which would drive up home-heating demand.

Oil markets have been extremely volatile this summer as traders fretted there would be inadequate supply in the event of significant - and prolonged - output disruptions in Iraq, Saudi Arabia, Russia or Venezuela.

But with the exception of sporadic reductions in Iraqi oil exports due to attacks on industry infrastructure, none of these fears have materialized.

Oil-price speculation by institutional investors, including hedge funds, magnified this summer's surge in prices, as well as the latest retreat in prices, analysts said.

Mortgage Rates News, Mortgage News, Financial News