Oil Prices Touch Year-and-a-Half Low on Weather, Waning Interest

Oil prices fell Tuesday, briefly touching a year-and-a-half low, on mild winter weather in the United States and waning interest from big investors in commodities indices.

The losses bring oil down roughly 9 percent since the start of the year, a slide that has raised concern among members of producer group OPEC.

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U.S. crude settled 45 cents lower at $55.64 a barrel, after tumbling more than $2 earlier to $53.88, the lowest since June 2005. Brent crude fell 42 cents to $55.18 a barrel.

"What's going on is there has been some fund selling," Deutsche Bank AG chief energy economist Adam Sieminski said during the conference call Tuesday.

Other analysts pointed to weak demand for heating fuels.

Weather forecaster DTN Meteorlogix predicted above normal temperatures for the rest of the week in the U.S. Northeast, extending an extraordinary streak of mild winter weather in the world's largest heating oil market.

The steep price drop has rung alarm bells within the Organization of Petroleum Exporting Countries and the group's president, the United Arab Emirates, was discussing further action with member states. But traders remained doubtful that OPEC could turn the tide.

"Traders continue to need some convincing that OPEC will fully implement production cuts," said Martin Slaney of GFT Global Markets.

The group agreed last month to cut production by 500,000 barrels per day, effective Feb. 1, adding to a cut of 1.2 million bpd that was supposed to have been implemented Nov. 1.

Saudi Arabia, OPEC's leading producer, and other members have vowed to enforce cutbacks fully.


Analysts warned that oil prices could fall further as more investment funds shift to short trading positions, a bet that prices will fall more.

Crude traders on the New York Mercantile Exchange slashed net long positions in the week ended Jan. 3, U.S. Commodity Futures Trading Commission data showed on Monday.

"The CFTC data was quite bearish because funds are increasing their short positions and not getting out of the market, which many had expected," Olivier Jakob of Petromatrix said.

In addition, analysts said prices have been pulled down as investors exit positions in commodity indices, such as the Goldman Sachs Commodity Index, which yielded poor results in 2006.

Widespread bearish sentiment was limited, however, by news of crude supply disruptions in Europe.

Russian crude supplies were halted this week to Central Europe through the Druzhba pipeline, which meets about a fifth of Germany's demand and crosses the territory of Belarus.

Russia has accused Belarus of stealing oil from the line.

The International Energy Agency on Tuesday said the European oil markets could cope with the haltm though Russian pipeline monopoly Transneft has not said how long the cut might last.

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