Crude Oil Prices Drop Below $65

Crude oil prices slipped below $65 a barrel Tuesday after the U.S. government indicated it might release emergency stockpiles of heating oil to combat supply disruptions from recent hurricanes.

Llight, sweet crude for November delivery on the New York Mercantile Exchange (search) fell 70 cents to $64.77 in electronic trading by midday in London. November Brent futures dropped 86 cents to $61.94 a barrel on London's International Petroleum Exchange.

U.S. Energy Secretary Samuel Bodman said Monday that the government was "prepared to do what is necessary with strategic reserves," when asked about the northeast emergency heating oil supply.

Bodman's comments followed earlier indications from the Paris-based International Energy Agency (search) that the group also was willing to consider releasing additional petroleum supplies.

Heating oil retreated a cent to $2.0623 a gallon while gasoline slipped more than half a cent to $2.0412.

"Brent crude has been rangebound in the past few weeks as the lack of refinery capacity has left the market awash with crude oil, but refined oil products have remained firm on concern about refiners' ability to produce a sufficient amount of heating oil during the fourth quarter," said analysts at Sucden Commodity brokers in London.

But some analysts have said America's strategic reserve of heating oil, at 2 million barrels, may not mean much to a market about to rebuild its inventories ahead of winter, when demand peaks.

Analysts are waiting for a U.S. petroleum inventories report due later in the week for fuller details of the impact of hurricanes Katrina and Rita.

Twelve refineries accounting for about 15 percent of refining capacity remain shut after last month's hurricanes Katrina and Rita wreaked havoc on the U.S. Gulf Coast.

The U.S. Minerals Management Service reported Monday that oil production lost to Katrina and Rita since Aug. 26 has now reached 45.12 million barrels, or 8.24 percent of the yearly total, the U.S. Minerals Management Service reported Monday.

A Dow Jones Newswires poll showed commercial crude stocks are expected to fall by 390,000 barrels for the week spanning Sep. 24, the day Hurricane Rita barreled through the U.S. Gulf Coast, to Sept. 30.

"This is going to be the report that will reflect the largest drop in refinery inputs from the hurricane," said Doug MacIntyre, senior oil market analyst with the U.S. Department of Energy. "This is the week that we will see possibly some of the bigger numbers that people were expecting last week."

Natural gas for November delivery inched up 0.4 cent to $14.021 per million British thermal units.

"In the short run, there is little problem with crude oil availability although the scale of lost crude oil production is mounting in significance and could become a problem further down the line," Barclays Capital analysts said in a note.

Analysts have also revised downward their forecasts of U.S. oil output for this year and the next, in the aftermath of hurricanes which damaged offshore platforms and onshore facilities in the Gulf of Mexico.

Energy research firm Wood Mackenzie (search) said it expected U.S. oil production to average 7.49 million barrels a day in 2005, 300,000 barrels a day less than the firm's last estimate. In 2006, it expects production to reach 7.66 million barrels a day, down 360,000 barrels from previous estimate.

Crude oil prices peaked at $70.85 briefly on Aug. 30, after Hurricane Katrina made landfall. They remain about 30 percent higher than a year ago, when Hurricane Ivan disrupted oil production and refining in the Gulf.