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Tue 2 Oct 2007 12:52 PM

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Oil price update - Oct 2

Oil deepens losses to below $80, extends profit-taking retreat to third day amid lingering economy concerns.

Oil deepened losses to below $80 a barrel on Tuesday, extending a profit-taking retreat to a third day amid lingering concerns about the strength of the economy.

US crude fell 37 cents to $79.87 a barrel by 0703 GMT after dropping $1.42 on Monday. London Brent crude dropped 34 cents to $77.30 a barrel.

With an anxious eye on a credit crunch in the US and Europe that is showing signs of slowing economic growth, oil investors have pulled back lately, halting the sharp rally that pushed oil prices to a record of $83.90 on September 20.

That retreat comes despite a key global stock index touching a record high on Tuesday and the US dollar hitting a succession of lifetime lows versus the euro and a basket of currencies, making dollar-denominated commodities cheaper.

Hope that the Gulf of Mexico may have weathered the worst of this year's hurricane season - which runs until the end of November - has also spurred profit-taking, traders said.

"The price outlook is pretty bearish at this point. I expect prices to fall below $80 this week," said Dariusz Kowalczyk, chief investment strategist at CFC Seymour.

"In the long-run, I expect prices to fall below $70 on the modest global economic outlook and the decline in the hurricane premium," he added.

Traders are awaiting US weekly oil inventory data due out on Wednesday, which is expected to show a decline in crude stocks, but a rise in distillate stocks.

A preliminary poll of analysts forecast crude stocks to show a 900,000 barrel fall, while distillate stocks were expected to have risen 900,000 barrels. Gasoline supplies were expected to have risen 400,000 barrels.

Refinery runs were forecast to have risen 0.4 percentage point, to 87.3% of capacity, the poll showed.

Qatar's oil minister brushed aside the need for the Organization of the Petroleum Exporting Countries to boost output, saying speculative investment flowing into the market was responsible for $80-plus oil.

"We increased at the last Opec meeting and were confident that it would help the market, but unfortunately the market is moving in a different direction," Qatar's Oil Minister Abdullah al-Attiyah told Reuters by telephone.

"More oil won't help at all."

The price has been above $80 for much of the last three weeks, despite Opec's agreement on September 11 to boost output by 500,000 barrels per day from November 1.

(Reuters)

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