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Oil plunges after London terror attacks

Crude oil prices hit another record high above $62 a barrel Thursday before backing off, amid heightened market uncertainty following a string of explosions in the British capital.
/ Source: The Associated Press

Crude oil prices hit another record high above $62 a barrel Thursday before backing off, amid heightened market uncertainty following a string of explosions in the British capital.

Three near simultaneous explosions hit the London subway and one tore open a packed double-decker bus during the morning rush hour Thursday. The blasts killed scores of people and injured hundreds more in what a shaken Prime Minister Tony Blair called a series of “barbaric” terrorist attacks.

Light, sweet crude for August delivery was lately down $1.03 cents at $60.20 a barrel on the New York Mercantile Exchange. It had earlier hit $62.10 a barrel, a new high.

Investors were also digesting the government’s latest fuel inventory data, which showed a decline in crude oil stocks of 3.6 million barrels and a decline in gasoline stocks of 0.9 million barrels.

“The market is very concerned at the moment, but it’s too early to draw any conclusions as we are in the middle of events and no one seems to have a clear idea of what exactly is going on,” said Frederic Lasserre, head of commodities research with Paris-based SG Securities.

“The instant market reaction (to events in London), was the same as in the case of the 9/11 attacks, which had a huge impact of consumers’ psychology and drove down demand,” Lasserre said.

The events in London turned around the bullish effects of hurricane-related worries from the Gulf of Mexico, with crude prices dropping as much $2.50 in five minutes, Lasserre said.

He said he expected the situation to have a temporary effect on prices but that concerns over the tight supply-demand balance would again be the major focus of the markets.

Worries over possible glitches in the U.S. supply network had sent crude prices to record highs as a string of tropical storms approach the Gulf of Mexico. On Wednesday, storm-related power outages disrupted some oil production and refining operations in the Gulf of Mexico.

The refinery snags caused by Tropical Storm Cindy were minor and temporary, and with petroleum producers preparing for another possible hurricane, the flow of oil from the region was reduced by almost 200,000 barrels per day.

Petroleum producers evacuated 85 production platforms and 11 drilling rigs, according to the Minerals Management Service, which said 190,000 barrels per day of oil had been shut-in as a result. That is less than 1 percent of daily demand in the United States.

Traders fear a repeat of last year’s Hurricane Ivan, which damaged oil platforms in the Gulf of Mexico and caused others to shut down for months.

Almost 44 million barrels of oil production were lost between September 2004 and February 2005, while natural gas output declined over the same period by 172 billion cubic feet.

Traders said the rally exemplified the energy market’s skittishness about any lost output at a time when the global supply cushion is thin.

Crude oil futures are about 60 percent above year ago levels, though still below the inflation-adjusted high above $90 a barrel reached in 1980.