Oil prices fall from record high; below $93 a barrel in Asian trading

VIENNA, Austria -- Oil prices dropped Tuesday from a record high in the previous session on the view that the disruption of a fifth of the oil production by Mexico's state oil company is only temporary.

Still, a weak dollar and perceptions of tight supplies kept upward pressure on crude prices.

Light, sweet crude for December delivery fell $1.11 to $92.42 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange.

The contract had risen $1.67 to settle at a record $93.53 a barrel Monday, after rising as high as $93.80, a trading record.

The surge was largely driven by news that Mexico's Petroleos Mexicanos, or Pemex, was to temporarily halt as much as 600,000 barrels of daily crude production, due to stormy weather.

But concern over the disruption of supply from Mexico was easing, analysts said.

"It looks like the production will resume in a matter of days so it's only a temporary disruption," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Also pushing prices up was the weakening U.S. dollar, which has drawn investors to dollar-denominated crude futures and increased the appeal of oil as an alternative investment, Shum said.

Vienna's PVM Oil Associates suggested that some of the surge could be due to the fact that "investors have reportedly also used oil to hedge against the weaker dollar."

Oil prices could get another boost this week if the U.S. Federal Reserve cuts interest rates at its policy meeting Wednesday.

"What the U.S. Federal Reserve will do in terms of interest rates will be something that traders will watch," Shum said. "If indeed there is a rate cut, it may further weaken the U.S. dollar."

Jochen Hitzfeld at Germany's HVB focused on stagnating global oil production versus increased demand, saying in a research note that "the $100 mark is likely to be tested by end-2007."

Shum said Tuesday's decline in crude prices was due mostly to profit taking after the previous session's record highs. But several factors continued to support oil prices, he said, such as the upcoming Northern Hemisphere winter season and concerns about inadequate supplies.

Prices have also been supported by fighting in Turkey between armed forces and Kurdish rebels, and the U.S. government's imposition last week of harsh penalties against Iran, the world's fourth-largest oil producer.

Nymex heating oil futures lost 1.66 cents to fetch $2.448 a gallon (3.8 liters) while gasoline prices dropped 2.55 cents to $2.3019 a gallon.

Natural gas futures added 0.1 cent to $7.975 per 1,000 cubic feet.

In London, Brent crude futures fell 90 cents to $89.42 a barrel on the ICE Futures exchange.

Despite oil's relentless march higher in recent weeks, many analysts argue that the price increases are being driven by speculation, not market fundamentals. News headlines out of Turkey, Iran and, on Monday, Mexico, contribute to this buying frenzy, these analysts argue.