LONDON – Oil prices fell to their lowest level in five months on Thursday after energy giant BP said it could bring its huge oil field in Prudhoe Bay, Alaska, back to full production by the end of October.
The field, the largest in North America, was partially shut last month after the U.K.-based company found leaks and severe corrosion in its pipelines — a move that had triggered a surge in crude prices.
U.S. light crude for October delivery settled down 18 cents Thursday to $67.32 a barrel after dropping as low as $66.76, the weakest since April 7. London Brent crude slipped 40 cents to $66.53.
Oil prices have dropped around 7 percent over the past two weeks as robust supplies in major consumer nations and a sluggish hurricane season ease supply fears.
BP officials testifying before Congress on Thursday said the Prudhoe Bay oil field could reach full capacity above 400,000 barrels per day if federal regulators approve its plan to bypass a rusted pipeline.
The field, which supplies 8 percent of U.S. oil, is currently running at about 220,000 bpd.
"This (news on BP) is just one more bearish headline on top of another," said Phil Flynn of Alaron Trading. "The partial shutdown at Prudhoe Bay inspired a scramble for imports and now production there is coming back, just as we have ended the summer driving season."
Prices were already under pressure after a U.S. Energy Information Administration report showed a larger-than-expected build in distillate inventories, which include heating oil.
Energy traders tend to shift their focus to distillates after the Labor Day holiday, which marks the end of peak gasoline demand and the start of the Northern Hemisphere winter heating season.
U.S. distillate stocks rose by 3.1 million barrels last week to 139.9 million. That was above expectations and the highest level since January 2002, according to the Energy Information Administration.
U.S. crude inventories fell by a larger-than-expected 2.2 million barrels last week, but analysts said supplies were more than ample for this time of year. EIA/S
"We have plenty of crude and so if we are comfortable on products we don't have to worry about our next barrel of crude oil," said Tim Evans, analyst with Citigroup Global Markets.
U.S. crude inventories already stand around 6 percent higher than a year ago and the surplus is likely to widen due to an unexpectedly benign Atlantic hurricane season so far.
"I think we have probably another $10 potential downside on oil, not very, very short term, but more by the end of the year," Frederic Lasserre, head of commodities research at Societe Generale, told a conference in Hong Kong.
"Fundamentals are pleading downward correction."
Iran's nuclear row with the West rumbled on, with senior diplomats from six world powers meeting in Berlin on Thursday to discuss possible sanctions after Tehran ignored a U.N. Security Council deadline to freeze its nuclear enrichment program.
But late-stage diplomacy and unease over punishment on the part of Russia and China has prompted traders to discount the risk to supplies. Iranian officials also downplayed the risk.
Tropical Storm Florence, which slowly strengthened in the open Atlantic, could grow into a hurricane, but computer tracking models projected the storm would spare the U.S. Gulf Coast and its oil facilities.