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Oil near new high amid tight supplies

"I think the prices will come down to about US$74 to US$76. We suspect that a sharp correction is imminent."

Mike Fitzpatrick, MF Global analyst

Global oil prices ended mixed on Friday at the end of a record-breaking week with tensions still high over tight supplies and Gulf of Mexico storms.

New York's main futures contract, light sweet crude for delivery in November, eased US$0.16 to close at US$81.62 per barrel.

In London, the price of Brent North Sea crude for November delivery rose US$0.21 to settle at US$79.30 per barrel, after hitting an all-time high of US$79.94 per barrel.

Traders are worried that stormy weather in the Gulf of Mexico, which accounts for about one quarter of US oil output, could disrupt production and stretch tight global supplies ahead of peak US winter demand for heating fuel.

The New York October contract on Thursday rocketed to a record US$84.10 per barrel before its expiry, while Brent surged past its previous peak set in August last year.

Prices are setting fresh records owing to the "evacuation of oil rigs and platforms" in the Gulf of Mexico, Barclays Capital analyst Kevin Norrish said.

"The concern is that what is currently only a tropical disturbance in the eastern Gulf could develop into a tropical storm and companies have already started evacuating workers from the area," he said.

Sucden analyst Michael Davies said that "crude futures remain well supported by a number of fundamental factors."

"The most recent support came from news that over 360,100 barrels of daily oil output was closed in the Gulf of Mexico, as energy producers were shutting down production facilities, because of a tropical storm developing in the region," he said.

Crude futures have enjoyed a record-breaking week in New York and London as traders have seized on supply worries ahead of the forthcoming northern hemisphere winter season.

Prices have also drawn strength from the diving US currency, which makes dollar-denominated commodities such as oil cheaper for foreign buyers using other currencies.

The US Federal Reserve's decision Tuesday to cut key interest rates by a bigger-than-expected 50 basis points to 4.75 percent has also perked up the oil market, which expects the cut to spur demand in the world's biggest energy consumer.

"Everybody is worried about the [US] inventory level going into the fourth quarter," said Tony Nunan, energy risk manager at Mitsubishi Corp in Tokyo.

The US Department of Energy had said Wednesday that American crude inventories plunged by 3.8 million barrels in the week ending September 14, underscoring global supply tightness.

That marked the 10th consecutive weekly drop and was almost double analysts' consensus forecasts for a fall of about 2 million barrels.

Mike Fitzpatrick at MF Global said there is a possibility of a further correction in prices after the sharp gains.

"I think the prices will come down to about US$74 to US$76," he said. "We suspect that a sharp correction is imminent."
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