Oil down to near $103 on Libyan hopes, U.S. economy
Oil prices fell to near $103 a barrel Tuesday as Libyan rebels made gains in their struggle to topple Moammar Gadhafi and restart crude exports from the OPEC nation.
By early afternoon in Europe, benchmark crude for May delivery was down $1.02 to $102.96 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $1.42 on Monday to settle at $103.98.
In London, Brent crude was down $1.04 at $113.76 a barrel on the ICE futures exchange.
Oil prices have come off near two-year highs above $106 last week after coalition bombing pushed back Gadhafi forces and allowed rebels to retake key oil ports. Fighting is expected to become more fierce as rebels approach the capital Tripoli — a Gadhafi stronghold.
"We believe the hopes of Libyan oil shipments normalizing soon are exaggerated ... and consequently do not expect oil prices to continue falling," said analysts at Commerzbank in Frankfurt. "The security situation in Libya is still tense, which is making it difficult for oil workers to return to production sites."
Trading volume of oil futures fell last week to its lowest level this year as investors tracked news not only from the Middle East, but also Japan. The Japanese government said it would release 22 days worth of inventories from its strategic petroleum reserves to ease shortages in the regions devastated by the March 11 earthquake and tsunami.
"This decline in volumes reflects a market now watching and waiting as it assesses the impact of the government responses to recent events," Goldman Sachs said in a report.
Traders are also gauging the strength of the U.S. economic recovery. The Conference Board index of consumer confidence will be released later Tuesday, and analysts will be looking for signs that buying sentiment has improved in tandem with the falling unemployment rate.
"If we see a disappointing consumer confidence number and a higher dollar there is a very real chance" of oil falling to $100 or below before the end of the week, energy consultant The Schork Group said.
The U.S. dollar has weakened so far this year, making oil cheaper for investors with other currencies.
Markets are also awaiting fresh figures of U.S. oil stockpiles.
Data for the week ending Oct. 1 is expected to show a build of 2.2 million barrels in crude oil stocks and a draw of 1.9 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
In other Nymex trading for April contracts, heating oil was down 1.79 cents to $3.007 a gallon and gasoline fell 1.63 cents to $3.0111 a gallon. Natural gas dropped 2.5 cents to $4.349 per 1,000 cubic feet.