Crude Price Slides but Market Remains on Edge Amid Hurricane

World oil prices fell nearly $2 a barrel on Friday as dealers took profits from a recent rally, but the market remained on edge as powerful Hurricane Ivan (search) thrashed through the Caribbean on a track toward the energy-rich Gulf of Mexico.

U.S. light crude last traded down $1.81 a barrel at $42.80, giving up nearly all of Thursday's gains that were triggered by government data showing stockpiles in the United States, the world's largest energy consumer, falling to six-month lows.

London Brent crude futures fell $1.87 to $40.35 a barrel.

"We're unwinding a bit from yesterday's run-up," said Marshall Steeves, an analyst at Refco Group in New York. "Even though Hurricane Ivan could affect some shipping, I don't think it's going to be nearly as severe a problem for oil operations at it could have been."

By next week Ivan could strike the Gulf of Mexico (search), home to about a quarter of U.S. oil and gas production, although the storm's forecast track on Friday was to the east of most energy facilities.

Crude prices are now roughly $5 below last month's record highs but still up around 35 percent from the start of the year.

Thursday's price surge followed a report by the Energy Information Administration (search) showing commercial crude oil stocks down more than 6 percent in the past two months, to the lowest level since March.

Stocks of distillate fuels, including heating oil and diesel, barely rose ahead of winter as strong economic growth pushed distillate demand 7 percent above last year, the EIA said. Stocks of aviation fuel fell sharply.

"It's distillates pre-occupying the market right now. Distillate stocks building by just 300,000 barrels -- a quarter their expected seasonal norm -- and jet stocks drawing by 410,000 came as a bullish double whammy," said Societe Generale analyst Frederic Lasserre.

Hurricane Ivan disrupted refineries and shipping as it tore through the Caribbean with 150 mph winds and roared toward Jamaica. If the storm moves west of its current track, it could hit oil and gas output in the Gulf of Mexico next week.

Major oil companies Shell and BP said they had evacuated some workers from the Gulf of Mexico, although no production had been shut.

Worries over the fate of Russian oil company Yukos reignited on Friday after reports that the resources ministry could revoke the license of its key unit, Yugansk, after it stopped paying tax. A source told Reuters a decision could be made in two weeks.

Yukos, which produces 1.7 million barrels per day of oil, or a fifth of Russian output, has had its accounts frozen over the government's demands for $7 billion in back taxes, though it has managed to keep producing and exporting.

However, despite this year's soaring oil prices, a Federal Reserve (search) official said world economic growth had not been hurt.

"While oil prices are certainly high enough to grab our attention, the situation is a far cry from what happened when oil prices shot up in the 1970s," Janet Yellen, president of the San Francisco Federal Reserve bank, said.

Despite the U.S. inventory dip last week, global oil stocks are slowly building due to OPEC's output surge in recent months.

"What is clear for now is that supply is running ahead of demand and stocks are building," the International Energy Agency said in its monthly Oil Market Report (search). "While demand is rising, so too is global supply."

Total OPEC supply to the 82 million bpd world market has risen by 1.5 million bpd over the past four months, with top producer Saudi Arabia pushing production to around 9.5 million bpd in August, up more than 1 million bpd since April.

OPEC, which controls about half of global crude exports, will meet on Wednesday in Vienna to review output policy.