Oil falls to $34 ahead of Feb contract expiry

SINGAPORE: Oil prices fell to near $34 a barrel Tuesday in Asia as traders sold the expiring front-month Nymex contract due to a lack of space at a key U.S. storage facility.

Light, sweet crude for February delivery was down 28 cents at $34.27 a barrel, after falling as low as $33.89, by midday in Singapore in electronic trading on the New York Mercantile Exchange. The contract, which expires on Tuesday, fell $1.96 overnight to settle at $34.55.

The February contract has fallen about a third in two weeks, in part because burgeoning supplies in Cushing, Oklahoma, the delivery point for the Nymex contract, have left traders with little space to store crude, forcing them to sell. Traders say some oil firms are storing crude on rented tankers.

``There's essentially no room to store crude, so everyone has been trying to sell the February contract,'' said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

Investors have turned their attention to the March Nymex contract, which is trading at $40.83 a barrel, and the March Brent, which is at $44.70 a barrel on the ICE Futures exchange in London.

``The true price of crude today is somewhere between $40-$45 a barrel,'' Shum said.

The oil market was closed in the U.S. on Monday for Martin Luther King Jr. Day.

Weighing on all the contracts is a severe recession in developed countries and a slump in global oil demand. Hundreds of U.S. companies report fourth quarter earnings this week, and investors are fearing the results could show the economic slowdown is deepening.

``The global economy remains the driver of oil so there's a lot of downward pressure,'' Shum said.

Goldman Sachs said Monday the price of oil could fall below $30 a barrel in the short-term before rising to $65 in the fourth quarter.

Investors will also be eyeing the inauguration of President-elect Barack Obama on Tuesday for any hints regarding the government's economic and energy policies.

In other Nymex trading, gasoline futures were steady at $1.14 a gallon. Heating oil was little changed at $1.43 a gallon while natural gas for February delivery was steady at $4.70 per 1,000 cubic feet.