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Oil Falls Below $120 as OPEC Increases Output

Monday, 04 Aug 2008 02:34 PM

Oil fell below $120 a barrel on Monday, pressured by evidence of rising OPEC output in the midst of declining demand in the United States and Europe.

The losses, adding to a record slide from the mid-July peak over $147 a barrel, came despite a storm in the Gulf of Mexico that was curbing oil production, shipping and refining.

"Crude futures are down despite a brewing storm and that shows you how momentum has shifted in this market," said Phil Flynn, analyst at Alaron Trading in Chicago.

U.S. light crude fell $4.10 to $121.00 a barrel by 12:40 p.m. EDT after slipping as low as $119.50. London Brent crude dipped $3.55 to $120.63 a barrel.

The losses came after a Reuters survey showed OPEC supply rose for a third consecutive month in July mainly because of increased output from the world's top exporter Saudi Arabia.

The boost in production from OPEC comes as soaring energy prices and an economic slowdown cut into consumption in the United States and Europe.

"The market is focused on falling demand with OPEC seen producing more oil," said Alaron's Flynn.

The bearish impact was countered by Tropical Storm Edouard, which was barreling across a major oil and gas producing area of the northern Gulf of Mexico.

The storm affected shipping and port operations, triggered evacuations and minor production outages offshore, and forced at least one refinery along the coast to shut.

The storm was expected to come ashore at close to hurricane strength Tuesday on the Texas-Louisiana coast.

Traders also were nervous supplies could be disrupted as a result of tension between the West and the world's fourth largest oil producer, Iran.

The head of Iran's revolutionary guard was quoted as saying Iran could close the Straits of Hormuz, a key Gulf shipping route, if it were attacked over its nuclear program.

Mohammad Ali Jafari's comments followed a telephone meeting between Iran and representatives of six world powers about Tehran's nuclear program in which the Islamic Republic said it would press ahead in spite of a demand to halt the work.

Tehran failed to meet Saturday's informal deadline to respond to a package of incentives offered by the six powers.

Oil supplies already have been disrupted from Nigeria, the world's No. 8 oil exporter, as a result of militant attacks that have cut about a fifth of its production.

Gunmen kidnapped two French expatriates near the country's oil industry hub of Port Harcourt in the restive Niger delta, military and security sources said on Sunday.

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Oil fell below $120 a barrel on Monday, pressured by evidence of rising OPEC output in the midst of declining demand in the United States and Europe.The losses, adding to a record slide from the mid-July peak over $147 a barrel, came despite a storm in the Gulf of Mexico...
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