Oil prices dropped 4 percent to below $59 Wednesday as mild weather in the U.S. Northeast cut fuel demand in the world's biggest heating oil market and signs emerged that investor interest in commodities was flagging.
NEW YORK -- Oil prices dropped 4 percent to below $59 Wednesday as mild weather in the U.S. Northeast cut fuel demand in the world's biggest heating oil market and signs emerged that investor interest in commodities was flagging.
U.S. crude settled down $2.73 to $58.32 a barrel, the lowest settlement since Nov. 17, before trading down to $57.72 in after hours electronic trade. London Brent plunged $2.48 to $57.96 a barrel.
U.S. oil had settled at $61.05 Friday, the last trading day of 2006, only 1 cent higher than at the end of 2005 and well below the record high of $78.40 hit in mid-July.
Prices have been undermined by a lack of fund interest as investors appeared to favor buoyant equity markets over commodities.
"It is possible you are seeing more interest in equities and less interest in commodities as growth is slowing. A slower growth environment is nonconducive to higher commodity prices," said Jason Schenker, economist for Wachovia Bank,
Warm weather in the United States, especially in the giant Northeast heating oil market, has also dragged down oil prices since late December.
DTN Meteorlogix predicted temperatures in the U.S. Northeast would be up to 16 degrees Fahrenheit (8 Celsius) above normal this week. Other forecasters also saw warmer-than-average temperatures until next week.
The National Weather Service said on Tuesday demand for heating oil in the week to Jan. 6 would be about 33 percent below normal.
Lower than normal heating oil demand is helping to offset any impact from supply cuts being implemented by the Organization of the Petroleum Exporting Countries.
The group has said it will reduce output by a further 500,000 barrels per day from Feb. 1, adding to a 1.2 million bpd cut from Nov. 1.
But Nigeria's top oil official, Edmund Daukoru, told Reuters he expected OPEC supply cuts would balance the market and said that Nigeria planned to comply fully with its share of the output reduction.
At the start of 2006, the price of U.S. crude shot up to $69.20 by late January after investment funds piled into the crude market, from $61.04 at the end of December 2005.
Many subsequently lost money as oil prices slid from their record highs.
Analysts said this January some funds appeared to be unenthusiastic about oil, although many market participants were still away following Christmas and New Year holidays.
"Pretty much all commodities have got hit hard today and if the commodity markets overall do not rally this week, it would indicate that new investors' money has taken a pass on commodities in general and oil in particular," said Nauman Barakat, senior vice president at Macquarie Futures USA. (Additional reporting by Cho Mee-young in Singapore; Barbara Lewis and Alex Lawler in London)