NEW YORK -- Oil tumbled nearly 3 percent to $69 a barrel Tuesday as Hurricane Dean weakened, easing concerns that the powerful storm would disrupt Mexican and U.S. oil operations.
U.S. crude fell $2.02 to $69.10 a barrel by 17.11 GMT, after trading down to $68.93 earlier. London Brent crude gave up $1.41 to $68.44.
U.S. oil had dropped 86 cents Monday after forecasts showed Dean would not hit U.S. oil production and refining facilities on the Gulf of Mexico.
Dean slowed to a Category 2 hurricane from Category 5 while passing over Mexico's Yucatan Peninsula, and was expected to roll into the oil-rich Campeche Sound late Tuesday.
Mexico, one of the top three suppliers of U.S. crude imports, has shut in 2.65 million barrels per day (bpd) of production —- slightly more than Venezuela's total output —- in the Campeche region and closed ports as a precaution.
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President Felipe Calderon said the output would be offline until Friday because of Hurricane Dean.
"Some lengths may have been kept just in case there was some damage to installations in Mexico. As soon as the market realized that there would not be any damage, correction has continued," said Olivier Jakob at Petromatrix.
U.S. crude has tested the $70 psychological support level several times in the past week, and some dealers had predicted a breach of that level could trigger heavy selling.
EMERGENCY OIL LOANS
The U.S. government said it was ready to make emergency oil loans from the nation's Strategic Petroleum Reserve to refineries, if necessary, to help offset any loss from Mexico, which supplies 13 percent of U.S. imports.
The oil market kept an eye on other financial markets for signs of any more turmoil that could spur a further sell-off of oil positions by investors to raise cash amid a credit squeeze related to the U.S. subprime mortgage crisis.
The credit squeeze has seen central banks across the world injecting cash into banking systems, and last week forced the U.S. Federal Reserve to announce a surprise cut to a key rate at which it lends short-term funds to banks.
European stock markets closed lower, while U.S. stocks edged higher in choppy trading.
U.S. Treasury Secretary Henry Paulson said the global financial turmoil would take time to play out while noting that the global economy remained strong.
China's central bank raised interest rates for the fourth time this year, aiming to counter expectations of accelerating inflation.
The U.S. weekly oil inventory data to be released on Wednesday is likely to show crude stocks fell 2.9 million barrels, gasoline stocks down 900,000 barrels, and distillate stocks up 800,000 barrels, a preliminary poll showed.
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