Oil prices retreat from record high

SINGAPORE: Oil prices dropped Thursday as traders took profit after US crude stocks fell and drove oil futures in the previous session above $80 a barrel for the first time ever.

Light, sweet crude for October delivery lost 26 cents to $79.65 a barrel in Asian electronic trading on the New York Mercantile Exchange by midmorning in Singapore.

The contract climbed as high as $80.18 a barrel Wednesday before settling at a record close of $79.91 a barrel, up $1.68.

Despite Wednesday's jump, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

``The world economy in the last few years has shown to be quite resilient to strong oil pricing, but this is certainly a new territory for crude oil and if sustained there is bound to be some impact on the economy,'' said Victor Shum, an energy analyst at Purvin & Gertz in Singapore.

However, Shum said profit taking in the near term will limit the oil price's ability to sustain above the $80-a-barrel level.

The weekly report Wednesday by the US Energy Department's Energy Information Administration said crude oil supplies fell 7.1 million barrels in the week ended Sept. 7, more than twice the average 2.7 million-barrel decline analysts surveyed by Dow Jones Newswires had expected.

Despite the decline, however, supplies were not unusually low, analysts said.

“Even though we saw a sharp drawdown in crude oil inventories, inventories are really still within the average range for this time of the year. That should be one calming reality,'' Shum said.

Gasoline inventories fell by 700,000 barrels, slightly more than the expected 500,000 barrel decline.

Refinery utilization fell by 1.6 percentage points to 90.5 percent of capacity. Analysts had expected a 0.1 percentage point decline. And inventories of distillates, which include heating oil and diesel fuel, grew by 1.8 million barrels, more than the 1.4 million-barrel increase analysts had expected.

Oil's recent advance, analysts said, has been largely due to speculative buying by big investment funds, who are responding to a price structure in which oil contracts for delivery in future months are cheaper than the current front-month contract.

That kind of structure signifies tight demand in the immediate future, and is a buying incentive. Investors who buy now will end up with more oil contracts later, when October futures roll over to cheaper contracts for delivery in later months.

In London, October Brent crude fell 6 cents to US$77.62 a barrel on the ICE futures exchange.

Heating oil futures lost 0.91 cent to $2.21 a gallon (3.8 liters) while gasoline futures fell 0.4 cent to $2.012 a gallon. Natural gas futures inched down 0.3 cent to $6.435 per 1,000 cubic feet.