Oil drops on reserves release report, storm limits loss

Fri Aug 24, 2012 5:32pm EDT
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By Robert Gibbons

NEW YORK (Reuters) - Oil prices fell on Friday after a report that the International Energy Agency is likely to tap strategic oil reserves as soon as September, dropping its resistance to a U.S.-led plan.

U.S. crude losses were limited because of the threat to Gulf of Mexico production from Tropical Storm Isaac and that potential supply disruption prompted selling of Brent positions and buying of U.S. crude, brokers said.

The IEA, whose chief recently dismissed the need for a release, is now thought to have agreed to the idea, the industry journal Petroleum Economist said, citing unnamed sources.

Reuters reported last week that the White House had begun "dusting off" previous plans for a possible release from its Strategic Petroleum Reserve because it fears that the sharp rise in oil prices since June could undermine the effect of sanctions on Iran.

"Oil prices declined on word of a change of heart at the IEA on a coordinated release of global SPR barrels. The market has been very sensitive to speculation over a release, which, if it were to occur, would work to lower prices for a time," said John Kilduff, partner at Again Capital LLC in New York.

Tropical Storm Isaac took aim at flood-prone Haiti on Friday and was expected to become a hurricane when it churns into the Gulf of Mexico early next week, on a path that could see it make landfall anywhere from New Orleans to the Florida Panhandle.

BP Plc BP.L said it was shutting production at its Thunder Horse oil and gas platform in the Gulf of Mexico, the world's largest, and other producers began storm preparations and evacuating nonessential personnel.

Another potential threat to supply looms after Norwegian oil services workers broke off wage talks with oil companies on Friday, taking the sector a step closer to its second strike within two months and leaving government mediation as the next formal step in the dispute.   Continued...

Gas pumps are seen at a petrol station in Prague May 10, 2012. REUTERS/David W Cerny