Crude Prices Drop 5% in Profit Taking

Oil prices fell 5% on Tuesday as speculators cashed in profits in advance of the weekly U.S. government report on oil inventories and consumption.

Word from U.S. officials that Saddam Hussein’s sons, Uday and Qusay, were killed in a battle with U.S. troops also affected prices, raising hopes that looting and sabotage at Iraq’s oil facilities might ease and oil exports could resume.

“The news that Saddam’s sons may have been killed gave traders a feeling that things would be a little bit more settled in that nation,” said Marshall Steeves, energy market analyst at Refco Energy Group in New York.

Crude oil for August delivery closed $1.59 lower at $30.19 a barrel, nearly $2 below five-week highs hit at the start of the week and the biggest one-day drop for the near-month crude contract in a month.

Big speculators had pushed oil prices up more than 6% since the start of July and nearly 25% since early May. Commodity fund investors had built up the largest “long” position on record for gasoline futures and were at a nine-month high in their buying of crude oil futures, according to Commodity Futures Trading Commission data.

Energy Information Administration inventory data due out today were expected to show a further drop in U.S. crude oil stocks because of strong gasoline production and shipping disruptions at the Gulf of Mexico during last week’s Hurricane Claudette.

Tuesday’s profit taking in crude oil also hit refined products. August gasoline closed 4.35 cents lower at 88.83 cents a gallon and August heating oil fell 3.94 cents to 75.64 cents.

U.S. crude stocks have been drained by a slower-than-expected recovery in postwar Iraqi crude exports as looting and sabotage damage the country’s oil infrastructure.

Iraqi production has stalled at 800,000 barrels a day, just a quarter of prewar levels. The State Oil Marketing Organization said Tuesday that it would start using long-term contracts for sales of crude from Iraq’s southern fields Aug. 1.

Iraqi exports since the war have been restricted to two modest spot sales, the second of which will be completed at the end of July.

Analysts said a threat voiced by a major Nigerian oil union Tuesday to go on strike Aug. 19 and continuing political instability in Venezuela together provided a floor for prices.