Oil Reverses Course and Slips More Than $1 on Mild Weather

Oil plunged over a dollar Tuesday, extending losses from last week as mild weather in the United States curbed demand for winter fuel.

The slide wiped out early gains that were driven by worries Iran might disrupt oil flows in response to U.N. sanctions.

U.S. crude fell $1.31 to $61.10 a barrel, while Brent crude dropped by $1.32 to $61.10 a barrel.

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Oil markets were closed Monday and public holidays across Europe Tuesday meant trading volume was thin.

After briefly touching a three-month high last Wednesday, prices fell just over a dollar last week as mild weather in top heating consumer the U.S. Northeast began to trigger selling.

"The weather still dominates the demand picture," said Steve Bellino, senior vice president for energy risk management at Fimat USA.

DTN Meteorlogix said temperatures in the U.S. Northeast had averaged 10-16 degrees Fahrenheit (5-8 Centigrade) above normal over the long Christmas holiday weekend.

As the mild weather continued, the National Weather Service said U.S. heating oil demand was expected to be about 23 percent below normal this week.

The market initially rose Tuesday, reaching a session high of $63.20 for U.S. crude, after the U.N. Security Council agreed on Saturday to impose sanctions on Iran's trade in nuclear materials and technology, drawing a warning from Tehran.

"If necessary, Iran will use any weapon to defend itself," Oil Minister Kazem Vaziri-Hamaneh was quoted as saying by the semi-official Fars news agency Tuesday. In the past he has said Iran would rather not play the oil card.

Iran, the world's fourth-largest crude producer, has condemned the U.N. resolution as illegal and on Sunday vowed to speed up enrichment work, which could heighten tensions.


Oil prices rose earlier in the year because of fears Iran might cut oil exports or disrupt Gulf shipping as its row with the West over its nuclear programme escalated. The issue had faded since summer as the U.N. appeared unable to agree on how to deal with Tehran.

Analysts said traders would probably disregard the latest developments unless they saw evidence of supply disruption.

"It is certainly a bullish factor, but I think geopolitical matters will be ignored unless clearer risks materialise," said Makoto Takeda, energy analyst at Bansei Securities Co.

Prices also drew some support after Abu Dhabi's state oil firm, the main producer in the United Arab Emirates, said it would cut exports of nearly half its crude grades by 3-5 percent in February.

The statement was the first sign the Organization of the Petroleum Exporting Countries intended to comply with a second round of output reductions agreed this month.

The new 500,000 barrels-per-day cuts are scheduled to take effect in February, giving the producer group time to assess whether peak winter demand will be enough to reduce swollen oil inventories in consumer nations.

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