Oil: Price falls 1.4 per cent as funds take profits

NEW YORK - Oil prices fell 1.4 per cent on Monday as fresh gains in the US dollar prompted profit-taking by speculative funds and as concerns faded over the supply impact of last week's refinery blast in Texas.


US light crude settled down 79 cents to US$54.05 after dropping as low as US$53.60 during the open-call session, handing back much of last Thursday's US$1.03 gain. Prices were more than US$3 below the all-time peak of US$57.60 set on March 17.


"Today there's some profit-taking because of the dollar, but volume is light," said Phil Flynn, an analyst with Alaron Trading in Chicago.


"The funds have started to liquidate the long positions that they have built over the past week," said Keichi Sano, assistant manager at Sumitomo Corp.'s commodities business.


The dollar hit a six-week high against the euro and a four- and-a-half-month high versus the yen on Monday on expectations that US interest rates would rise at a faster pace. Dealers have said funds may be drawn out of their big long positions in commodities and into the currency markets.


Speculative funds raised their net length in the US crude oil market slightly last week, just shy of the eight-week high from two weeks earlier, and boosted their holdings in petrol to the highest in just over a year, regulatory data showed.


US petrol shed 2.65 cents to US$1.5727 a gallon, bringing it more than three cents below last week's record high that had been triggered by Wednesday's blast at BP's Texas refinery. The explosion stirred fears of a supply crunch when Americans take to the roads this summer.


The blast, which killed 15 people, damaged an isomerisation unit that upgrades the quality of petrol but left most of the plant's operations unaffected.


BP Chief Executive John Browne said the incident cut no more than 5 per cent of petrol production at the plant, the third largest in the United States.


A second steep weekly fall in US petrol inventories last week added to concerns, although stockpiles are still 7.5 per cent above year-earlier levels, US data released last week also showed. US crude oil stocks rose strongly to their highest since July 2002.


"Aside from the BP incident, which had limited short-term impact, the market's remaining fundamentals are more bearish, " said Man Energy analyst Edward Meir.


Analysts polled by Reuters expected the next batch of inventory data from the US government to show another increase in crude stockpiles due to slower refinery activity, and further declines in finished fuel stocks.


The market's losses Monday were tempered slightly by news of a large earthquake off the coast of Sumatra, which experts feared could trigger tsunamis. Opec member Indonesia is the world's largest natural gas exporter and a significant supplier of crude to Asian consumer countries.


"There could have been a couple of short-coverings after the earthquake news but that was very small," said one dealer.


With oil prices back below US$55 a barrel -- Opec's threshold for discussing a second output increase -- the cartel looked likely to sit tight for the moment, counting on its initial 500,000-barrel-per-day (bpd) rise in mid-March to cool prices.


"So far I have not gotten any calls from the (Opec) president and we will wait from now until the next Opec meeting in June," Qatar's Oil Minister Abdullah bin Hamad al-Attiyah said on Sunday.


Algeria's Energy and Mines Minister Chakib Khelil said on Monday Opec does not need to raise oil production at the moment as markets are sufficiently well supplied, the official APS news agency reported.


Indonesian Oil Minister Purnomo Yusgiantoro reiterated that changed market fundamentals justified an Opec oil price target US$10 above the range established five years ago. The US$22-US$28 range was formally abandoned in January.


"If we take into account inflation and changes in exchange rates, and if we take into account only the fundamental factors, the range should be US$32-US$38 a barrel," Purnomo said.


- REUTERS