Oil fell below $80 a barrel on Tuesday on continued profit-taking from last week?s record high, as more output was restored in the Gulf of Mexico following shutdowns triggered last week by a storm. U.S. crude for November fell $ 1 to $ 79.95 a barrel by 7:55 a.m., adding to Monday?s 67-cent loss to bring it nearly $ 4 below the record $ 83.90 set by the October contract last Thursday. London Brent crude shed 61 cents to $78.30 a barrel.

U.S. crude oil production in the Gulf of Mexico rose to 80.7 percent of capacity on Monday, up from 37 percent on Friday, the U.S. Minerals Management Service said, as oil companies redeployed workers to offshore rigs. ?The softening is due to light liquidation of precautionary positions taken out late last week as fears that there could be storm damage to U.S. Gulf oil facilities over the weekend proved unfounded?; Barclays Capital said in a briefing note.

But traders kept a wary eye on upcoming storm threats. The U.S. National Hurricane Center said on Monday a tropical cyclone could form in the southwestern Gulf of Mexico, while a couple of tropical depressions could form in the Atlantic. However, three out of four weather models predict the system will steer clear of U.S. oil and gas producing facilities.

?In the short term, we believe there?s potential for a price correction?, said Harry Tchilinguirian, senior oil analyst at BNP Paribas, citing heavy refinery maintenance expected next month and a seasonal drop in demand as bearish factors. ?When the risks of hurricanes are also behind us, the sort of correction we had last October ? losing $10 quite easily at the end of the season ? we believe we could have a repeat of that?, he added.

<B>U.S. inventories</B>

The market is also looking for direction from the U.S. weekly petroleum stocks data, due today. A Reuters poll of analysts showed U.S. refiners probably slowed imports of crude oil last week, causing inventories to fall by about 2 million barrels, their fifth-straight decline. Stocks of distillates, including heating oil, were expected to have risen by 1.3 million barrels while gasoline inventories were seen unchanged, the preliminary poll found.

Refiners could have curbed imports for economic reasons too, the poll showed, as prices for future crude deliveries are cheaper than the currently traded month, making it good business sense not to store more feedstock than needed. The oil rally was forecast to continue next year with average prices seen hitting a record level on the back of tight oil supplies, red-hot global demand and a weakening dollar, a Reuters poll of analysts showed on Tuesday.

Analysts raised their average 2008 oil price forecast for U.S. crude to $66.56 a barrel as many believe the current rally will continue well into 2008. The forecast surpasses the record average of $66.24, reached in 2006.