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Bloomberg: Crude Falls From One-Year High on Speculation Gains Unjustified

By Eduard Gismatullin

July 30 (Bloomberg) — Crude oil slipped from a one-year high in New York as some traders speculated last week’s gains were unjustified.

Oil rose 2.8 percent on July 27 after the U.S. government said the nation’s economy expanded 3.4 percent last quarter, the fastest pace in more than a year. Asian stock market declines helped push oil lower.

“People were worried a little bit about the equity outlook today,” said Rob Laughlin, a senior broker at MF Global Ltd. in London. “The market overdid itself on the rally. The market volatility actually got a little bit carried away with itself.”

Crude oil for September delivery fell as much as 62 cents, or 0.8 percent, to $76.40 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $76.69 at 11:14 a.m. in London.

Asian stocks rebounded from a one-month low. The Morgan Stanley Capital International Asia Pacific Index had climbed 0.4 percent to 155.18 by 11:15 a.m. in London, after earlier dropping as much as 0.8 percent.

Brent crude oil for September settlement declined as much as 64 cents, or 0.8 percent, to $75.62 a barrel on the ICE Futures exchange. It was at $76.04 in London.

CATS Inspected

BP Plc today said divers completed an inspection of the damaged Central Area Transmission System, which carries natural gas from North Sea to the Teesside sub-terminal in northeastern England. A permanent repair will be required before the pipeline can resume operating in September, the company said.

CATS was halted on July 1 after BP, its operator, discovered damage to the pipe’s concrete covering, caused by a ship’s anchor. Its closing forced several installations that feed CATS to shut down, among them fields run by BP, Royal Dutch Shell Plc, ConocoPhillips and BG Group Plc.

Speculators, such as hedge funds, cut their net-long positions, or bets prices will rise, in oil futures to 108,782 contracts on the Nymex in the week to July 24, according to the U.S. Commodity Futures Trading Commission data. Net-long holders reached a record of 112,287 contracts on July 10.

“The speculative positions are very large right now,” said Jakob Schoechli, an analyst at Clariden Leu in Zurich. “In the next few months, I think these positions will be reduced and the price will fall. I think $70 a barrel is realistic.”

New York oil futures reached a record $78.40 a barrel on July 14, 2006, on concern fighting in Lebanon between Israel and Islamic militia Hezbollah would spread through the Middle East. Futures settled at a record $77.03 that day.

Iran’s View

Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, doesn’t support an increase in oil production at the group’s next meeting, said Shana, the oil ministry’s press agency, yesterday.

Iran believes high prices are caused by geopolitical issues and U.S. gasoline shortages and the country will not back output increases, the agency said, citing Oil Minister Kazem Vaziri- Hamaneh.

OPEC will meet in Vienna on Sept. 11 to review its production ceiling. The group, which supplies about 40 percent of world’s oil, last year pledged to cut production by about 1.7 million barrels a day to maintain prices around $60 a barrel.

OPEC’s basket price, an average of 11 blends produced by the member nations, fell 66 cents to $72.22 a barrel on July 27.

“There is more and more pressure on OPEC to increase production, faced with rising prices into the fourth quarter,” said Jean-Bernard Guyon, managing director at Global Gestion in Paris. “Demand remains strong.”

Supply Concern

Concern that oil supply will be disrupted is inflating the value of oil by about $7 a barrel, OPEC Secretary General Abdalla El-Badri said, according to a report in the Viennese newspaper WirtschaftsBlatt. OPEC’s members are satisfied with an oil price of $50 to $80 a barrel, he said.

The Nigerian government plans to seek help from Diepreye Alamieyeseigha, a former governor of Bayelsa state governor, who was freed from jail on July 28 to help quell militant violence in the oil-producing Niger River delta, ThisDay reported, without citing anyone.

Nigeria, Africa’s largest oil producer, is losing about a quarter of its output because of militant attacks on oil facilities. Royal Dutch Shell Plc said last week it had no firm date for when it can return to full production in Nigeria.

In U.S. dollars, West Texas Intermediate, the New York-traded crude benchmark, has risen 3 percent in the past 12 months. It has dropped 4 percent in euros, 5 percent in British pounds and risen 7 percent in yen.

To contact the reporter on this story: Eduard Gismatullin in London at [email protected]

Last Updated: July 30, 2007 06:48 EDT

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