London: Oil dropped to a new five-month low on Tuesday on expectations OPEC would leave formal output targets steady and as the threat of Hurricane Ike to US Gulf of Mexico energy infrastructure receded.
OPEC ministers meeting in Vienna were expected to keep output targets steady with calls from some to trim excess supply above agreed limits, about 790,000 barrels per day (bpd) according to some estimates.
Officials said oil prices -- which have tumbled nearly 30 per cent from record highs over $147 a barrel in July -- are now more reflective of fundamentals.
"I think everything is in balance -- inventories are in a healthy position," said Ali al-Naimi, oil minister for Saudi Arabia, the world's top exporter.
US crude fell $2.50 to $103.84 by 1340 GMT after hitting a fresh five-month low of $103.72 a barrel earlier.
London Brent crude traded down $2.11 to $101.33.
"OPEC leaving quotas unchanged is a little dissapointing for the market and Ike looks more like a downstream threat at the current track," said UBS oil strategist Thomas Stenvoll.
Hurricane Ike approached western Cuba as a Category 1 storm before heading toward South Texas later in the week, but was expected to miss the bulk of the US offshore oil and natural gas platforms in the Gulf.
Energy companies -- still recovering from Hurricane Gustav last week -- began shutting production as Ike approached the Gulf, home to a quarter of US oil production and 15 per cent of natural gas output.
"If this storm does nothing, I think this could be the event that pushes oil back down that $100 a barrel area," said Phil Flynn of Alaron Trading.
Slumping demand in the United States and other big consumer nations due to high fuel prices and wider economic problems has sent crude off its record peak.
US inventories
The impact of Gustav is expected to be reflected in weekly US goverment inventory data, due out on Wednesday.
"We will see more than the usual amount of draws coming out of inventories both this week and next," said Edward Meir of broker MF Global.
A Reuters poll of analysts forecast data would show a 4.3 million barrel draw in US crude oil stocks last week.
Gasoline stocks were seen down by 4.2 million barrels and distillates by 2.5 million barrels.
Surging consumption in China and other emerging economies sent oil on a six-year rally, with additional support coming this year from investors pouring cash into commodities as a hedge against inflation and the weak dollar.
The rebound in the greenback has put additional pressure to oil prices over the past few months, with the dollar hitting a one-year peak against a basket of currencies early Tuesday before weakening on profit-taking.
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