Washington Oil prices fell below $60 a barrel Friday, reversing course late in the day as traders booked profits following a runup predicated on the fear of hurricane-related supply disruptions.
Early on, crude futures prices rose as high as $61.90 per barrel on the New York Mercantile Exchange, with traders shrugging off the shock of the London bomb blasts and focusing instead on Hurricane Dennis' approach in the Gulf of Mexico. Traders fear a repeat of last year's Hurricane Ivan, which damaged oil platforms and resulted in months of lost production in the region.
But the rally lost steam amid speculation that the power of Dennis might not be as intense as originally feared, leading traders to take some chips off the table.
"People got scared heading into the weekend," said oil broker Mike Fitzpatrick at Fimat USA in New York. "I wish I could give you a better explanation."
Light, sweet crude for August delivery dropped by $1.10 to settle at $59.63 per barrel on Nymex.
Unleaded gasoline futures declined by 4.22 cents to $1.7634 a gallon, while heating oil futures plunged 5.68 cents to $1.7181 a gallon.
In London, Brent crude futures fell by $1.10 to $58.20 per barrel on the International Petroleum Exchange.
Oil analyst Scott Meyers, of Pioneer Futures Inc. in New York, said "what remains to be seen is how much damage is caused" by Hurricane Dennis, which gained strength while barreling through the Caribbean toward the Gulf of Mexico. Forecasters warned residents from Florida to Louisiana to be ready this weekend.
"If nothing happens, we might come in Monday to see a significant selloff," Meyers said. "It's speculation at its finest."
But Meyers said any reprieve likely would be temporary, since the hurricane season just got started and any threat to supply would keep traders on edge.
While there is enough oil and gasoline on the market to meet demand, oil analysts expect demand to rise throughout the second half of the year. They also are concerned about the ability of oil producers and refiners to keep up.
The Group of Eight industrialized nations, which met Friday in Scotland, said that surging oil prices posed a risk for the world economy. Russian President Vladimir Putin said his country would work to boost exports in an effort to ease market tightness, but he gave no timeline for the increase.
Global oil demand is expected to average more than 84 million barrels per day this year, leaving an estimated 1.5 million barrels per day in excess production capacity that can be tapped in the event of a supply disruption.
"We can't afford to have any outages anywhere, whether it's a political situation in a petroleum supplying nation or whether it's a hurricane in the Gulf of Mexico," said oil broker Tom Bentz, at BNP Paribas Commodity Futures in New York. "This is what everyone's been worried about all along."