Expectations of tighter supply failed to support crude oil prices, which fell victim to a drop in share markets and the dollar’s rise in European morning trading.
The dollar rose to a six month high against the euro at $1.3808, its highest level since March, hitting oil prices. ICE October Brent fell $0.27 to $114.27 a barrel while the Nymex October West Texas Intermediate lost $1.18 to $87.87 a barrel.
Gold also gave up its earlier gains, falling 1 per cent to $1,849.94 a troy ounce on profit taking.
Oil has seen underlying support from the effects on inventory from weather risks this week. After tropical storm Lee, which led to a shut down in production in the Gulf of Mexico, tropical storm Nate is expected to reach hurricane strength at the weekend.
Further production stoppages are likely to have an impact on US crude inventories. The department of energy announced this week that stocks dropped by 4m barrels, which was more than expected.
Other supply problems in the oil sector are supporting prices amid pessimism about global economic growth. While there are hopes of a revival in Libyan oil production, the uncertainty over the timing continues.
In his latest report, Lawrence Eagles, head of oil research at JPMorgan in New York, said: “The consensus is that with the Libyan civil war essentially over, market pressures are easing but the reality is that we are at the peak point of Libyan stress – without crude production but with high imports to meet internal fuel needs.”
He said the near term risks should ease as rising Libyan production is joined by higher Iraqi exports towards the end of the year and into early 2012.
Industrial metals were dragged down by lower equity prices with copper for three month delivery on the London Metal Exchange down 1.7 per cent to $8,955 a tonne and aluminium losing 1.1 per cent to $2,393.
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