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Oil tumbles below $71 as supply concerns ease

LONDON - Oil fell more than a dollar on Thursday to its lowest price in nearly two months after ample U.S. fuel stockpiles eased investor fears of supply shortages as the U.S. summer driving season draws to a close.

Although prices have fallen for four consecutive sessions, the market is still up 14 percent this year on healthy global demand, geopolitical tensions and supply disruptions in key oil-producing countries.

U.S. light, sweet crude for September delivery dropped $1.19 to $70.70 a barrel by 1100 GMT, its lowest since June 26. London Brent fell $1.21 to $71.62 a barrel.

U.S. crude prices have tumbled more than seven percent, declining in six of the last eight sessions, as a ceasefire took hold in the Middle East and BP decided to shut in only half of its 400,000 barrels-per-day (bpd) Prudhoe Bay oilfield for pipeline repairs.

“We’ve had a raft of bearish news. Some of the factors and disruptions that helped us drive us to very high levels have been resolved now,” said Eoin O’Callaghan of BNP Paribas.

Some dealers had feared the partial closure of the biggest oilfield in the United States might trigger a surprisingly large drawdown in this week’s crude inventories, but data on Wednesday showed a decline of 1.6 million barrels, in line with forecasts.

Crude stocks have fallen from the eight-year high reached earlier this year, but still remain higher than at almost any time since 1999, giving refiners a sizeable supply buffer to guard against any unexpected disruptions.

Gasoline inventories dropped by a deeper-than-expected 2.3 million barrels, but demand eased from the previous week as the summer driving season, which ends in early September, began to wind down.

“Very robust gasoline demand did not translate into a considerably large stock draw,” O’Callaghan said. “There hasn’t been that sharp fall many were expecting.”

Distillate stocks rose 800,000 barrels and heating oil supplies stand higher than a year ago, the data showed.

Supplies of natural gas, also used for winter heating, stand at historically high levels for the season and are expected to have risen over the past week, a Reuters poll showed. Gas storage data is due for release later on Thursday.

Middle east focus shifts to Iran

In the Middle East, Lebanese troops rolled into the country’s south on Thursday to join UN peacekeepers in taking control of Hizbollah strongholds as a ceasefire with Israel, ending the month-long war, extended into a fourth day.

But regional security concerns remain a factor for the market, as Iran—OPEC’s second-largest producer—faces a self-imposed deadline of Aug. 22 for responding to a package of incentives meant to end its uranium enrichment.

Foreign Minister Manouchehr Mottaki said on Wednesday that Tehran was ready to discuss with the West the issue of suspending enrichment but would explain that it believes any halt to be “illogical”.

Iran says it wants to make fuel for nuclear power plants. The West accuses Iran of using its civilian nuclear programme as a smokescreen to build atomic bombs.

The spectre of an Atlantic storm season—which has yet to produce a hurricane—also supported prices. Devastating Hurricane Katrina hit the U.S. Gulf Coast at the end of August last year, and some oil and gas fields have yet to recover.