Brent crude futures slipped towards $112 per barrel on Wednesday on expectations Hurricane Isaac, which hit land in Louisiana, would spare Gulf Coast oil production facilities from significant damage.
The U.S. energy industry has shut most facilities in the Gulf of Mexico, cutting the region's oil production by more than 90 per cent. Most shut downs were precautionary.
An unexpected rise in crude inventories in the United States and data showing weakening U.S. consumer confidence added to the bearishness, although lingering tensions in the Middle East supported prices.
"The hurricane in the U.S. has already made landfall and expectations are that oil production and refineries in the Gulf Coast will be back onstream in the near-term," said Victor Shum, a senior partner at Purvin & Gertz, an oil consultancy in Singapore. "That has resulted in the drop in oil futures."
Brent October futures had fallen 28 cents to $112.30 per barrel at 0411 GMT, after dropping below $112 in early trade. U.S. crude fell 57 cents to $95.78 per barrel.
Worries about supply disruptions resulting from the hurricane pushed Brent to a high of $115.50 per barrel on Monday, while Nymex futures hit a peak of $97.72.
Isaac crashed ashore in southeast Louisiana on Tuesday, bringing high winds and soaking rains that pose the first test for multibillion-dollar flood defenses put in place in New Orleans after Hurricane Katrina devastated the U.S. Gulf Coast seven years ago.
ECONOMIC UNCERTAINTIES
Ongoing concerns about the global economy and uncertainties about the U.S. Federal Reserve's stance on further easing were also muddying the outlook for oil demand, adding to the pressure on prices.
While data showed home prices rose in June for a fifth-straight month, another measure of U.S. consumer confidence slipped to a nine-month low in August as Americans were more pessimistic about business and labour market prospects.
"The economy has been slow to recover with limited job opportunities, heightened international risks and political uncertainty," Michelle Meyer, senior U.S. Economist, Bank of America-Merril Lynch, said in a report. "This will keep consumers on edge and the economic growth sluggish."
Further cues on whether the Fed is leaning towards more stimulus is expected from Chairman Bernanke's speech on Friday at an annual meeting at Jackson Hole, Wyoming.
Bernanke has used the event for the past two years to indicate the Fed's policy intentions.
A poll of 61 economists gave a 45 per cent chance of the Fed announcing a third round of quantitative easing, or QE3, after its policy meeting on September 12-13.
Outlook for the U.S. economy is also clouded as the country faces its worst drought in over five decades, especially over key farming states.
IRAN, SYRIA
Violence in the Middle East, the world's biggest oil producing region, has been preventing a sharper drop in prices.
Syria's refugee exodus is accelerating and up to 200,000 people could settle in Turkey alone if the conflict worsens, the United Nations warned on Tuesday, increasing pressure for the creation of a buffer zone inside Syria.
Meanwhile, Iran, which is currently engaged in a dispute with western nations over its nuclear programme, said it had no plans to show its nuclear sites to diplomats visiting Tehran for this week's Non-Aligned Movement (NAM) summit, despite an earlier offer by a deputy foreign minister.
Adding to investor uncertainty are the mixed signals from policymakers on a White House plan to release some of its strategic reserves to rein in rising prices.
U.S. oil has gained 8.8 per cent so far this month -- on track for its biggest monthly rise since October last year -- while Brent has added about 7 per cent.
Sources had told Reuters this month that the White House was "dusting off" old plans for a possible release of oil reserves.
But the head of the International Energy Agency on Tuesday voiced her strongest opposition yet to a release of emergency oil stocks, risking a rift with the IEA's most influential member, the United States, over strategic reserves policy.
"Higher prices alone are not the trigger for an IEA collective stock release and at this moment we see that the crude oil market is adequately supplied," Maria van der Hoeven, executive director of the agency that represents 28 energy importing countries, said in an interview.
STOCKPILES RISE UNEXPECTEDLY
Prices were also pressured lower by an unexpected rise in U.S. crude oil inventories as indicated by a report from the American Petroleum Institute (API).
U.S. crude oil stocks rose 5.5 million barrels last week, against expectations for 1.5 million barrel drop. The market will now await inventory data from the U.S. Energy Information Administration due out later in the day.
Copyright @ Thomson Reuters 2012
RECOMMENDED FOR YOU
POPULAR