Oil slips as dealers shrug OPEC cut, hurricanes

NEW YORK Wed Sep 10, 2008 3:39pm EDT

1 of 2. A sign board above the oil futures pit at the New York Mercantile Exchange September 9, 2008. Crude oil was trading around $103 a barrel at mid day after OPEC ministers were to hold a meeting and hurricane Ike was heading towards Gulf of Mexico oil platforms.

Credit: Reuters/Chip East

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NEW YORK (Reuters) - Oil prices dipped to fresh five-month lows on Wednesday as weak demand and a strong dollar offset a surprise OPEC production cut agreement and back-to-back hurricanes in the Gulf of Mexico that have started cutting deeply into U.S. energy supplies.

U.S. crude fell 68 cents to settle at $102.58 a barrel after dropping as low as $101.36, the lowest since early April. London Brent crude fell $1.37 to $98.97.

The losses came after the International Energy Agency cut its world oil demand forecasts for this year and next year as high prices and mounting economic troubles cause consumers and businesses to conserve.

U.S. oil demand is already running about 3.8 percent below last year, according to government data.

Oil and other commodity prices were also pressured lower on Wednesday by gains in the U.S. dollar -- a factor that weakens commodities by undermining the purchasing power of buyers using other currencies. The dollar scaled a one year peak against a basket of currencies on Wednesday.

Oil prices have dropped about 30 percent since a record high over $147 a barrel in mid-July, hit by concerns over slowing consumption and a rebounding dollar.

Wednesday's losses were tempered by news OPEC decided to lower its production ceiling to 28.8 million bpd from earlier targets of 29.67 million bpd.

Analysts said the group was seeking to support the market at around $100 a barrel, though some were skeptical the cartel would follow through on the agreement.

Sources at oil refineries around the world told Reuters this week that OPEC kingpin Saudi Arabia had left its crude supply allocation unchanged for October.

Meanwhile, oil companies shut U.S. offshore oil and natural gas platforms and readied coastal refineries on Wednesday as the latest hurricane churned into the Gulf of Mexico on a track for the Texas coast.

Oil output from the region, home to a quarter of U.S. crude production, was less than 5 percent of normal as Hurricane Ike approached just over a week after Hurricane Gustav spun through the same area toward Louisiana.

The back-to-back hurricanes were already cutting deeply into U.S. energy inventories with crude oil stocks down 5.9 million barrels last week, according to the Energy Information Administration.

Gasoline and distillate stocks also fell as Gustav pushed refinery operations to their lowest levels since 2005.

Analysts said the impact of the EIA report was limited as regional data showed crude oil stockpiles along the Gulf Coast actually rose last week in the midst of the nationwide draw -- a sign that the weaker refinery activity was offsetting the loss of offshore crude production.

(Reporting by Ikuko Kao, Matthew Robinson and Jane Merriman in London, Angela Moon in Seoul and Jonathan Leff in Singapore; Editing by Marguerita Choy)

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