Light crude oil ends week down on oversupply worries

Light crude oil futures prices settled lower Friday, posting the biggest single day loss in two weeks on worries over near term supplies outpacing demand.

Light, sweet crude oil for October delivery on the New York Mercantile Exchange settled 3.7%, or $2.65, lower at $69.29 a barrel. That was the biggest decline since Aug. 31 and followed four days of gains that pushed prices up by nearly $4 a barrel.

Traders said heavy selling swept through the market when crude couldn't punch through the $73 a barrel level, setting up a steep decline to a low of $68.82.

US oil refiners are expected to sharply cut back on crude oil needs in coming weeks as seasonal maintenance work at facilities kicks in. That means crude oil stocks may climb, while inventories of petroleum products already stand at high levels, traders said. On Friday, market players seemed to focus on the potential for those excess supplies to weigh on prices, rather than the weak dollar and strength in equities markets, two factors that had eclipsed the gloomy oil fundamentals in recent days.

"It's the continuing battle between (weak oil supply/demand) fundamentals and economic optimism and there's a lot of uncertainty over which is going to be the strongest performer" in the conflict, said Gene McGillian, an analyst at Tradition Energy in Stamford, Conn.

He noted prices continue to hold in a $65 to $75 a barrel range where they've been since the start of August.

Officials of OPEC this week kept oil output restraints in place and said prices around current levels were fair for both producers and consumers. While OPEC leader Saudi Arabia expressed confidence over the coming economic recovery that will lift demand for oil, some analysts voiced concern about oversupply weighing on the market.

Francisco Blanch, head of global commodities research at Bank of America Securities-Merrill Lynch, said in a report that high distillate stocks in the US and other major industrialized nations pose a clear risk to oil prices, especially if temperatures are warmer than normal.

"In a very warm winter, we estimate global oil demand could drop by 500,000 barrels a day," Blanch said.