7 November 2005, 12:02  Oil fades toward $60 as warm weather curbs demand

Oil prices dipped to $60 on Monday as mild weather across the northern hemisphere and recovering U.S. crude production soothed worries over a supply shortfall. U.S. light crude oil slipped 36 cents to $60.22 a barrel in Asian trading, deepening Friday's $1.20 a barrel fall. London's Brent crude fell 13 cents to $59.12. Oil prices tumbled to a three-month low of $58.75 a barrel last week as mild weather and high prices showed signs of dimming demand, but fears of a rebound in consumption helped staunch the retreat. Prices hit a record $70.85 a barrel in late August. Temperatures in the U.S. Northeast -- the world's biggest market for heating oil -- are running well above the seasonal norm and may remain so throughout this week, forecasters say. In the north of Japan, the world's third-largest oil consumer and a major user of kerosene for home heating, the weather should remain normal or warmer than normal for the next two weeks, government forecasts showed late last week. "Immediate fundamentals look bearish," said Tony Nunan, the manager at Mitsubishi Corp.'s risk management business in Tokyo. "Weather seems very mild and inventory levels are high." Although U.S. gasoline inventories are below par, stocks of crude and heating oil are still above year-ago levels thanks to hefty imports and reduced demand. Japanese kerosene stocks are about 9 percent higher than the five-year average. Crude oil production from the hurricane-battered U.S. Gulf has also recovered to its highest level since late August, when Hurricane Katrina thrashed the region. Output rose to nearly half its 1.5 million barrels per day capacity. Despite improving supplies, traders and analysts are on alert for any signs of a winter chill that could drive up consumption, straining markets still struggling to cope with the loss of fuel output after the most severe hurricane season on record. Three refineries accounting for just under 5 percent of U.S. capacity remain closed due to storm damage. "The unfolding of winter still presents major price risk both to the downside and to the upside should weather be normal or colder than normal," Goldman Sachs said in a report. The warmer conditions last week encouraged speculators to bet on a further fall in prices, with the volume of net short crude oil positions held by non-commercial traders on the New York Mercantile Exchange at its highest in two years, according to regulatory data for the week ended Nov. 1. They boosted net shorts to 42,040 lots on crude oil and to 10,744 on heating oil futures, the most since mid-January.

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