Oil Prices Briefly Dip Below $63

Oil slid briefly below $63 a barrel on Friday, touching its lowest level since March as U.S. fuel stockpiles grew ahead of winter and investors probed for a price that would trigger an OPEC supply cut.

U.S. crude dropped as low as $62.03 per barrel, the cheapest since March 23, before settling up 11 cents at $63.33. London Brent crude was off 21 cents at $63.33.

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"Our sense is the market might like to test where OPEC wants to set the price floor," said Frederic Lasserre, head of commodity research at Societe Generale.

"The psychology of the market has really turned. It looks like the market will be oversupplied next year unless OPEC does something."

The Organization of the Petroleum Exporting Countries (OPEC) on Friday cut its demand forecast for its oil by 200,000 barrels per day (bpd) next year, when supply from rival producers is expected to surge.

The group's own economists expect demand for OPEC oil in 2007 to be 800,000 bpd below this year.

OPEC ministers kept oil output steady near a 25-year high at a meeting this week, but left the door open to a supply cut before the end of the year. They have been at pains to avoid setting a price target they would defend.

"(OPEC ministers) have not had to think about cutting output to defend prices for a long time, but the question is now front and center in the market," said Mike Wittner of Calyon.

Top world exporter Saudi Arabia would start quietly trimming supplies if U.S. crude fell to around $60, Wittner said.


Oil has fallen more than 20 percent from its mid-July record of $78.40 as the supply picture improves.

Mounting evidence that the United States has enough fuel stocks to meet winter heating demand further pressured prices.

Natural gas stocks are over 12 percent above the average for the last five years. And distillate stocks, which include heating oil, are at their highest level since October 1999.

The market's slide has deepened as concerns wane over the possibility of Iran, the world's fourth biggest oil exporter, withholding shipments in its dispute with the West over its nuclear ambitions.

President Bush said on Friday he was worried Iran was trying to wait out the United States and its European allies in the dispute.

"My concern is that they'll stall, they'll try to wait us out," Bush told a news conference.

European Union foreign policy chief Javier Solana said in Brussels earlier on Friday he was "really making progress" in talks with Iran on its nuclear program.

Prices were falling across commodity markets on expectations that economic growth may be slowing in China, Lasserre said.

"Data is mixed from the U.S., but there are signs that (government) measures to slow down Chinese growth may be having an effect, he said. "A slowdown in Chinese demand would be felt across commodities."

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