Oil: US$2 slide as storm fears fade

Oil fell more than US$2 a barrel on Monday as Tropical Storm Ernesto was expected to miss US oil installations in the Gulf of Mexico, almost a year after they were pounded by Hurricane Katrina.

Ernesto, which had become the year's first hurricane, weakened into a tropical storm on Sunday and was expected to hit southern Florida instead of key oil and gas platforms in the Gulf, home to a quarter of US oil production.

"The storm for now looks like it's going to have no impact on oil," said Olivier Jakob of Petromatrix in Zug, Switzerland. "It started to be discounted on Friday and now there is a continuation of that."

US crude CLc1 fell US$2.16 to US$70.35 a barrel by 1633 GMT, after on Friday paring much of the day's gain to rise 15 cents. London Brent crude LCOc1 slipped US$2.09 to US$70.61.

"The threat to oil is now fading quickly," said Tobin Gorey of the Commonwealth Bank of Australia.

As a precaution, BP, Shell and ConocoPhillips said Sunday they were pulling nonessential workers from rigs in the US Gulf.

Ernesto pelted southeastern Cuba with heavy rain but diminished winds on Monday. It could become a hurricane again over the Florida Straits, the National Hurricane Center said.

Hurricane Katrina hit New Orleans on Aug. 29, 2005, toppling offshore rigs, destroying pipelines and flooding coastal refineries.

As of the middle of this year, about 12 per cent of the Gulf of Mexico's 1.5 million barrels per day of crude oil production remained offline because of the record 2005 storm season.

Oil drew support from the dispute over Iran's nuclear work that might prompt sanctions against the world's fourth-largest oil exporter.

Iran said on Sunday it would never stop uranium enrichment despite a looming UN deadline designed to ensure it cannot develop nuclear weapons.

Also on Sunday, Iran test fired a long-range missile from a submarine during war games in the Gulf. Analysts have viewed such moves in the past as a signal that Iran might disrupt oil shipping if the atomic dispute escalated.

The United States has threatened swift action on sanctions after Aug. 31 if Iran does not heed the UN demand. But analysts say divisions between major powers may delay any punitive measures.

US crude is up 15 per cent this year on fears over Iran's supplies and reduced Nigerian output. It has fallen from a record high of US$78.40, hit in July, after a cease-fire between Israel and Hizbollah in Lebanon.

At least 508,000 barrels per day, or about a sixth of Nigeria's production capacity, has been shut down by militant attacks and pipeline leaks this year.

- REUTERS