Oil falls below $81 as US Gulf production recovers

NEW YORK (Reuters) - Oil fell on Monday, edging further away from last week's record high, as energy companies in the Gulf of Mexico began restoring output shut by a storm.

U.S crude settled 67 cents lower at $80.95 a barrel, bringing it nearly $3 below the record $83.90 hit last week on the Gulf production outages, falling U.S. inventories, rising speculative inflows and the weakening U.S. dollar.

London Brent crude shed 39 cents to $78.91.

Crude oil production in the U.S. Gulf of Mexico rose to 80.7 percent of capacity on Monday, up from 37 percent Friday, according to the U.S. Minerals Management Service, as oil companies redredeployedployed workers to offshore rigs.

Anticipation of last week's storm dealt the heaviest blow to Gulf of Mexico oil production since the massive hurricanes of 2005 as oil companies took preventive measures. But the storm passed through the region without causing damage to installations.

While some analysts say crude could be ready for a downward correction, they warn that geopolitical concerns or more storms in the Gulf could spur prices higher again.

"Markets can typically overshoot in the short-term, as has been the case recently," said Harry Tchilinguirian, senior oil analyst at BNP Paribas.

"Of course, another weather or geopolitical event can send the market higher, but fundamentally during the autumn (refinery) maintenance period, we have a potential for a correction before another upturn."

Oil and other commodities have been boosted by the falling dollar, which hit a record low against the euro for a third straight session on Monday, with gold near a 28-year peak.

"Commodities in general have benefited from the weakness of the dollar, but crude oil has acted more like a dollar derivative," said Olivier Jakob of Petromatrix.

SPECULATIVE CASH

Rising investment flows are also supporting prices, with speculators' increasing net long positions on the New York Mercantile Exchange in the week to September 18 in a bet prices are heading higher.

"The supportive planks for oil bulls, tensions in Nigeria and between the West and Iran, are once again figuring in the minds of traders," Addison Armstrong, analyst at TFS Energy, wrote in a report.

But technical analysts who track price patterns see signs the price surge may soon run out of steam.

"Although CFTC figures show that speculative length increased this past week, it is still far below the record highs. This suggests that funds were not exactly chomping at the bit to go long at such high levels this past week," said Edward Meir at broker MF Global.

OPEC earlier this month agreed to raise output by 500,000 barrels per day (bpd) from November 1, a move analysts have said is not enough to calm supply concerns ahead of winter demand.

Nigeria's oil minister said on Monday there was no need for more OPEC oil, however, and that the group was not considering raising output again right now.

"There are clearly other factors outside of our power that are affecting the market," Oil Minister Odein Ajumogobia said on the sidelines of a Nigerian conference in New York.

A Reuters poll of analysts forecast weekly U.S. government data to be released on Wednesday will show a 2 million barrel crude draw, a 1.3 million barrel build in distillates and no change to gasoline stocks.

(Additional reporting by Jane Merriman, Fayen Wong and Alex Lawler)