NEW YORK -- Oil prices slipped Wednesday after an early rally in jittery trading due to hurricane speculation and light volume.
"The driving force on the market today, if there is any, is the track of the storm Ivan," said Phil Flynn, senior market analyst at Alaron Trading Corp. in Chicago.
Ivan became a Category 4 storm Tuesday as it surged through Grenada, gaining force as it headed across the Caribbean Sea north of Aruba, Bonaire and Curacao. The storm, the most powerful to hit the Caribbean in more than a decade, is likely to cross over Jamaica by Friday or Saturday and aim for the United States, the National Hurricane Center in Miami said. Ivan will probably reach the Gulf of Mexico Sunday or Monday, it said, where the United States has its largest concentration of refineries.
On the New York Mercantile Exchange, light crude set for October delivery fell 54 cents to settle at $42.77 a barrel after rising as high as $43.70 earlier in the day.
Flynn said both the early rally and the subsequent drop in prices were due to uncertainty about Hurricane Ivan.
"The perception now is that Ivan may not do as much damage as originally thought," Flynn said. "The storm has gone near Venezuela, where they've shut down some units, but they say they're not going to shut down any more."
In response to Ivan, Valero Energy Corp. began a full shutdown Wednesday of its 225,000-barrels-a-day Aruba refinery. But, weather permitting, Valero plans to restart operations Thursday.
Flynn added that with the volume so light, the market could change very quickly.
"The winds of Ivan have been pushing the market up and down at will," Flynn said.
Steven Bellino, senior vice president at Energy Risk Management, called the market's up-and-down movement "lackluster."
"It's sideways - there's nothing going on, a lot of people on holiday," Bellino said, noting that economic data to be released Thursday should provide a more substantial trajectory for trading.
However, the market has strong support in oil products, analysts said, due to the shutdown of Valero.
In other Nymex trading, October gasoline rose 0.25 cent to settle at $1.1817 a gallon, while October heating oil fell 0.24 cent to $1.1612 a gallon. October natural gas fell 15.9 cents to $4.631 per 1,000 cubic feet.
On London's International Petroleum Exchange, Brent crude futures fell 37 cents to close at $40.39 a barrel.
Analysts said traders were reacting less to events in the Middle East than they have been in the past few weeks.
"Yesterday was Saudi Arabia and OPEC. Today, it's all about the storm," Flynn said.
Speaking at the World Energy Congress in Sydney on Tuesday, Organization of Petroleum Exporting Countries President Purnomo Yusgiantoro said Tuesday that world oil production is running "1.5 million barrels every day above demand, based on our forecasts." Analysts say daily global oil demand is around 82 million barrels.
Reports Wednesday that Iraq has been using substitute oil pipelines to resume pumping following an attack last week in Turkey and that output rates are down had little effect on trading.
Flynn added that the record high two weeks ago, driven in part by concerns about supply following Iraqi pipeline explosions, is serving as a lesson to traders now.
"The market isn't going to be reacting to every headline out of Iraq," Flynn said.
The highest closing price for Nymex-traded crude futures was $48.70, on Aug. 19, and prices have fallen roughly 12 percent since then. On an inflation-adjusted basis, prices are about $14 below the level reached leading up to the first Gulf War.
Market psychology has changed since mid-August, as the number of Nymex speculators betting on higher oil prices fell by more than 10 percent last week, according to the Commodity Futures Trading Commission.
Energy markets have been nervous all summer due to the potential for output disruptions in Iraq, Russia and Venezuela. But the global supply chain has remained intact despite sporadic export difficulties out of Iraq.