NEW YORK – Oil prices slipped on Monday as investors banked profits from recent gains, and amid eased concerns about summer supplies of gasoline.
Fears of supply disruptions in the Middle East kept prices just a little over a dollar under early June's 21-year peak above $42.
The losses were led by gasoline futures, which settled more than 3 cents weaker, at under $1.25 a gallon.
"Todays selling is evidence of further disappointment that the driving season is halfway done and that inventories are actually more comfortable than they have been in months," said Tim Evans, analyst at IFR Energy Services.
The government reported last Wednesday U.S. gasoline supplies rose 2.5 million barrels to widen the year-on-year surplus to 5 million barrels. This Wednesdays data is expected to show gasoline stocks down a mere 150,000 barrels and distillate stocks up by 600,000 barrels, according to a Reuters survey.
Commerzbank analyst Steve Turner said the bearish tone might have been stoked by weekend press reports that Saudi Oil Minister Ali al-Naimi thought OPEC's (search) current price band of $22 to 28 a barrel was "absolutely valid."
OPECs reference crude basket has been above the cartels $22 to 28 target range all year and last stood at $36.96 a barrel. Naimi was also quoted as saying that Saudi Arabia could increase production capacity to as much as 12 to 16 million bpd "in the medium term." The kingdom is currently producing around 9.5 million barrels a day (bpd).
Refinery disruptions last week in Germany and South Korea ahead of winter have given speculative fund buyers a fresh impetus to increase their exposure to oil, alongside persistent concerns about Russian supplies. Analysts PFC Energy said speculators were now playing a key role in determining oil price movements. "Against the backdrop of a fundamentally tight market, non-commercial traders are now playing the role not of price takers, but actual price makers in an energy environment which they view as almost unstoppably bullish," said a PFC report.
"Many of these traders work across a broad variety of markets and have increased their presence in oil due to a lack of appealing alternatives," the report said. U.S. regulatory data on Friday showed speculators at non-commercial crude oil funds raised their net buying positions about 15 percent to 36,142 lots for the week ended July 20.
Prices have been further buoyed by fears that supplies of heating oil and gas oil, refined products used mainly for heating, are not building fast enough ahead of the northern hemisphere winter.
Worries over tight heating oil supplies before the cold months were further stoked by a fire on Friday at the 310,000-bpd Miro refinery in Germany.
The fire at Germanys largest refinery had cut output of gasoline and light heating oil and it would take weeks or months to repair three badly damaged units, the refiner said.
"Were just coming off an all-time high for gas oil, crude looks very strong at the moment and theres the potential for fresh highs to be hit on both this week," said Barclays Capital analyst Kevin Norrish.
Fundamental factors appeared stronger than in early June, he said, when U.S. crude futures hit an all-time high of $42.45.
"Theres a lot of crude being thrown at the market, but it doesnt look like its really proving enough given the very strong demand growth that were seeing," Norrish said.