LONDON (Reuters):
Oil prices plunged over a dollar yesterday, extending losses from last week, as mild weather in the United States (U.S.) curbed demand for winter fuel.
The slide wiped out early gains that were driven by worries Iran might disrupt oil flows in response to United Nations (U.N.) sanctions.
U.S. crude CLc1> fell $1.31 to $61.10 a barrel, while Brent crude LCOc1> dropped by $1.32 to $61.10 a barrel.
Oil markets were closed on Monday and public holidays across Europe yesterday 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 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 per cent below normal this week.
Session high
The market initially rose yesterday, 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 yesterday. 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.
Support
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 three to five per cent 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.
