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Oil prices fall as traders focus on stock markets

As traders shifted focus from the threat of Hurricane Dean on U.S. energy facilities in the Gulf of Mexico to worries about global stock markets oil prices dropped Tuesday.

Hurricane Dean strengthened to a Category 5 storm Monday night as its rains and winds slammed the coasts of Mexico and Belize. A few companies evacuated some rigs and suspended production, but it didn't appear that the storm would cause much damage to operations in the United States.

As supply worries faded, concerns about the battered stock market's drag on global demand came to the forefront.

Light, sweet crude for September delivery lost 43 cents to US$70.69 a barrel in European electronic trading on the New York Mercantile Exchange by noon in Europe. The contract fell 86 cents to settle at US$71.12 a barrel Monday.

"Obviously these storms can make unexpected twists and turns but as of now the market is sensing that most oil production facilities will be spared," Phil Flynn, an oil analyst at Alaron Trading Corp., said in his daily note to clients.

"The energy markets are of course looking ahead to the seasonal softness in demand and fears that a slowing economy might make demand for energy softer than usual."

Vienna's PVM Oil Associates also noted lessening hurricane worries.

"Tensions in the market appeared to ease after news emerged that Hurricane Dean would spare the production and refining centers on the U.S. Gulf Coast," it said.

The Federal Reserve boosted stock prices Friday when it cut the rate it charges banks by a half percentage point. Wall Street Monday reflected continuing credit worries, keeping alive fears that investors may need to liquidate more assets to cover losses and that a cooling economy may dampen energy demand.

Many speculative investors - those looking to make fast money, as opposed to commercial investors who use the market to hedge their interests - have exited the market, analysts say.

With gasoline demand falling and investors nervous about committing cash to the market, crude prices have weakened. The possibility that Hurricane Dean could strike the Gulf's key oil facilities lifted crude about a dollar a barrel Friday. As that danger lifted Monday, crude resumed its plunge.

Though Dean was unlikely to have any lasting effect on U.S. production, it has the potential to dampen the nation's Mexican imports.

Mexico's state oil company, Petroleos de Mexico abandoned its offshore oil rigs just ahead of Hurricane Dean, evacuating more than 18,000 workers and shutting down production in its main oil-producing region. The temporary closure will mean a production loss of 2.7 million barrels of oil and 2.6 billion cubic feet of natural gas a day, the company said. Of that, about 1.7 million barrels of oil a day is exported from three Gulf ports, where Pemex loaded the final tankers on Monday.

In May, about 50 million barrels, or 11 percent, of the 439 million barrels of crude oil and oil products the United States imported from other countries came from Mexico.

The U.S. Minerals Management services said Monday that Dean led U.S. energy producers in the Gulf to evacuate 10 of the 834 manned platforms in the region, and to temporarily suspend about 3.2 percent of the Gulf's usual daily crude production and 1.3 percent of its normal natural gas production.

September Brent crude fell 33 cents to US$69.52 a barrel on the ICE futures exchange in London.

Heating oil futures lost nearly a penny to fetch US$1.972 a gallon (3.8 liters) while gasoline prices dropped 1.54 cents to US$1.9212 a gallon. Natural gas prices declined nearly 10 cents to US$5.941 per 1,000 cubic feet.

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