Oil prices retreated Wednesday in Asia from record highs above US$88 a barrel overnight amid expectations a fuel report due later in the day would show U.S. crude and gasoline stocks rose last week.
Prices remained supported by concerns a Turkish incursion into Iraq in search of Kurdish rebels could disrupt crude supplies.
Turkey's parliament is expected Wednesday to agree that the government can launch a cross-border attack into Iraq sometime over the next year. The government has said an offensive against the rebels in northern Iraq will not immediately follow the authorization.
An incursion would threaten the pipeline that runs from Kirkuk, in Iraq, to the Turkish export terminal of Ceyhan. While exports of crude from Kirkuk to Ceyhan have been sporadic since the U.S.-led invasion of Iraq in 2003, oil has been flowing the past two months and in recent days was being shipped at a rate of nearly 500,000 barrels a day, Dow Jones Newswires reported.
Light, sweet crude for November delivery dropped 49 cents to US$87.12 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract rose US$1.48 to close at a record US$87.61 a barrel Tuesday in the U.S. after rising as high as US$88.20, a trading record.
December Brent crude dropped 44 cents to US$83.11 a barrel on the ICE futures exchange in London.
Oil prices have also been driven higher by recent reports from the U.S. Energy Department, the International Energy Agency and the Organization of Petroleum Exporting Countries suggesting oil supplies are flat or falling as demand is growing.
Despite the gains, the price of oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a US$38 barrel of oil in 1980 would be worth US$96 to US$101 or more today.
Many analysts argue that the supply and demand fundamentals don't support oil in the high US$80 range, and believe speculative investing is the real culprit behind high oil prices. And as long as investors are willing to keep buying, prices will keep rising.
Traders were turning their attention to the U.S. Energy Department's midweek petroleum supply snapshot to be released later Wednesday. Crude oil and gasoline stockpiles were expected to have increased 1 million barrels each for the week ended Oct. 12, according to the mean forecast in a Dow Jones Newswires survey of analysts.
Distillates, which include heating oil and diesel fuel, were expected to have fallen 400,000 barrels. Refinery use was expected to have grown by 0.4 percentage point of capacity.
Heating oil futures lost 1.62 cents to US$2.3225 a gallon (3.8 liters) while gasoline prices fell 0.92 cent to US$2.1645 a gallon. Natural gas futures declined 0.8 cent to US$7.359 per 1,000 cubic feet.
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