Oil prices dip below $78 a barrel By GILLIAN WONG, Associated Press Writer

Oil prices dip below $78 a barrel By GILLIAN WONG, Associated Press Writer
1 hour, 37 minutes ago



SINGAPORE - Oil prices fell Wednesday as traders took profits after the front-month crude futures contract closed at a record price in the previous session.

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Light, sweet crude for September delivery lost 40 cents to $77.81 a barrel in Asian electronic trading on the New York Mercantile Exchange, midmorning in Singapore.

The contract gained $1.38 to settle at $78.21 a barrel Tuesday on expectations that U.S. crude inventories fell last week.

Investors believe a weekly inventory report by the U.S. Energy Department's Energy Information Administration, due later Wednesday, will show that refiners drew down oil inventories last week as they continued to increase gasoline production, analysts said.

"Oil surged ahead yesterday to set a new settlement record for Nymex, primarily fueled by momentum buying in expectations that U.S. inventory data due today will show crude stocks falling," said Victor Shum with Purvin & Gertz in Singapore. "This morning it's edging down some due to profit taking."

Analysts surveyed by Dow Jones Newswires, on average, expected Wednesday's inventory report to show crude oil inventories fell 690,000 barrels in the week ended July 27 as refinery utilization rates rose 0.7 percentage point to 92.4 percent of operating capacity.

"If crude stocks don't fall, or if the stock drawdown is smaller than expected, then one could expect to see some liquidation by investor funds," Shum said.

Declines in crude inventories have driven oil prices higher in recent weeks even though overall stocks are comparatively high.

Vienna's PVM Oil Associates noted that "even with such a decline, U.S. crude stocks would remain some 43 million barrels above the five-year average and around 17 million barrels higher than seen in the same week last year."

Those fundamentals seem not to matter to many speculators. Analysts say large investment funds — many of which trade on technical factors — have pulled money out of gasoline futures and plowed it into oil futures in recent weeks, another factor driving high oil prices and undermining gasoline futures.

Hedge funds and other speculators have been trying, unsuccessfully, to test the all-time intraday record high of $78.40 a barrel, set last July.

"There is certainly a lot of talk about trying to push past that intraday record of $78.40 but it would take a lot of help from the inventory data to make pricing go above the record and stay there," Shum said. "The market is vulnerable to a reversal."

Crude prices have gained more than 20 percent in the past two months on a combination of refinery outages, supply reductions in Nigeria and the North Sea, and forecasts that global supply at the end of the year might not be enough to match demand. The rise has been rapid, with prices hitting fresh recent highs in 18 of the past 23 sessions.

The U.S. Energy Department report is also expected to show gasoline stocks increased 1.1 million barrels last week. Distillate stocks, which include heating oil and diesel fuel, are expected to have risen 1.4 million barrels.

September Brent crude fell 36 cents to $76.69 a barrel on the ICE futures exchange in London.

Nymex heating oil futures lost 0.3 cent to $2.1202 a gallon, while gasoline prices dropped 0.3 cent to $2.1029 a gallon.

Natural gas futures inched down to $6.189 per 1,000 cubic feet.