Oil: Storm threat eases

Oil dived below US$70 a barrel on Tuesday, extending a steep sell-off the previous session when fears receded of storm damage to oil and gas infrastructure in the US Gulf of Mexico.

Concern about economic weakness in the United States, the world's biggest energy consumer, added to selling momentum, while Iran's determination to press ahead with its nuclear programme was expected to check the slide.

US crude for October delivery was trading 86 cents lower at US$69.75 a barrel by 1543 GMT and London Brent crude lost 98 cents to US$69.84 a barrel.

On Monday, US crude had fallen by US$1.90 after Ernesto, which was briefly the first hurricane of the US season, was downgraded to a tropical storm.

Forecasters said it could recover hurricane strength, but was heading towards Florida and was not expected to affect oil and gas production in the Gulf.

Last year hurricanes Katrina and Rita temporarily knocked out all of the Gulf's offshore production and pushed oil prices to then record highs.

The hurricane season continues until around November, but analysts say the oil supply situation is comfortable and some predict oil prices, which hit an all-time peak of US$78.65 early this month, will struggle to regain previous strength.

If oil prices end the session below US$70 a barrel it would be the lowest market close since June.

"The highs are not going to be repeated unless we get a really damaging hurricane," said Olivier Jakob of Petromatrix.

"The tensions in Iran are going to be there for a while, but for now there's nothing that says there's going to be any threat to our supply."

The United Nations Security Council has told Iran to suspend atomic fuel work by Thursday or face possible sanctions, but Iran has repeatedly said it will not stop uranium enrichment.

"Peaceful nuclear energy is the right of the Iranian nation. The Iranian nation has chosen that based upon international regulations, it wants to use it and no one can stop it," Iranian President Mahmoud Ahmadinejad said on Tuesday.

Analysts have voiced concern that Iran, the world's fourth largest oil exporter, might disrupt oil supplies in response to any sanctions against it.

US SLOWDOWN

For now fuel supplies are healthy and there are some signs of lower demand growth as a result of high prices, which are also prompting concern about a slowdown in US economy.

Worries about job growth and the economy drove US consumer confidence to a nine-month low in August, according to a survey by the Conference Board published on Tuesday.

The US government's Energy Information Administration on Monday released data showing US petrol demand grew in June by less than half the rate implied by previous figures.

The next set of data to be released on Wednesday was expected to show a 1.2 million barrel decline in crude stocks last week after refineries increased activity.

Distillate stocks, including heating oil, were expected to rise by 1.2 million barrels, a Reuters analyst poll found.

Petrol stocks were predicted to fall by 800,000 barrels, but analysts are decreasingly concerned about petrol inventories given the US summer driving season is considered to end with next week's Labor Day holiday.

"The recent petrol market sell-off and increasing attentiveness of the market to the US slowdown supports our forecast that after peaking in the third quarter, crude prices will fall into the fourth quarter and 2007," Eoin O'Callaghan of BNP Paribas wrote in a research note.

- REUTERS