Stability sparks oil price decline
Iran and OPEC news bolster hopes that supplies will remain high, but OPEC talks of setting a $60 price floor.
By ASSOCIATED PRESS
Published September 12, 2006
NEW YORK - Oil prices dropped below $66 a barrel Monday after Iran said it would consider halting its enrichment of uranium and OPEC ministers said they would maintain their production target of 28-million barrels a day.
These developments supported the view that supplies will outpace demand - a market sentiment that has pushed crude oil prices down about 16 percent from their all-time record reached in mid July.
"When supply exceeds demand, commodities have one way to go, and that's down," said Oppenheimer & Co. analyst Fadel Gheit. "Barring a global crisis, or a major supply disruption, I think the trend will continue."
Still, the magnitude of Monday's price decline shrank as traders digested the statement by OPEC that it would monitor market conditions and consider an output cut later this year.
Light, sweet crude for October delivery fell 64 cents to settle at $65.61 a barrel Monday on the New York Mercantile Exchange, the lowest closing price for front-month crude since finishing at $64.16 a barrel on March 27. It dropped as low as $64.85 earlier Monday.
The average U.S. retail price of regular unleaded gasoline fell by almost 11 cents last week to $2.62 a gallon, the lowest it has been in more than five months. According to AAA, the average price for regular unleaded gas in the Tampa Bay area Monday was also $2.62.
U.S. financial markets gained slightly Monday. The Dow Jones industrial average rose 4.73, or 0.04 percent, to 11,396.84. Broader stock indicators also closed higher. The Standard & Poor's 500 index added 0.62, or 0.05 percent, to 1,299.54, and the Nasdaq composite index rose 7.46, or 0.000034 percent, to 2,173.25.
Iran said Sunday that it is ready to consider complying, at least temporarily, with a U.N. Security Council demand that it freeze uranium enrichment. Expanding on terms of such a possible Iranian compromise, a diplomat familiar with the issue said Tehran was seeking assurances it would not be attacked by the United States during any negotiations with six world powers on enrichment and other nuclear issues.
"It was definitely a surprise that Iran would actually consider pausing enriching uranium," said Alaron Trading Corp. analyst Phil Flynn. "We knew the Iran situation wasn't going to lead to any oil supply cuts in the short-term, but now there's hope a showdown will be avoided completely."
With the Iran threat erased for now, ample oil supplies appear they will remain that way. OPEC maintains about 2-million barrels a day of spare capacity, and stocks are high elsewhere. The U.S. Department of Energy said last week that crude inventories have hit their highest levels since 1998.
Global demand figures continue to be strong, Alaron's Flynn said, but traders are betting that demand will taper off now that the U.S. driving season has ended and as winter approaches in the Northern Hemisphere.
If this winter is mild like last year's, prices could plummet further. "I'm still holding onto a bullish outlook ... but some people are talking about $40 a barrel," Flynn said.
Some OPEC members, including Iranian Oil Minister Kazem Vaziri Hamaneh, suggested that prices shouldn't be allowed to fall below $60 a barrel.
According to Oppenheimer's Gheit, crude prices would have to fall below about $55 a barrel before OPEC would start worrying about members' revenue.
"Oil prices are still higher than a year ago, double where they were three years ago, and three times the support level OPEC established for itself five years ago," Gheit said. "OPEC is in no hurry to cut production, because they still think, why panic? We never thought we'd have $60 oil. ... They are likely to overstay their welcome, if you will, and saturate the market with excess crude."
Additionally, Nigerian Oil Minister Edmund Daukoru, who is also president of the Organization of Petroleum Exporting Countries, told reporters at the OPEC meeting that a total of 872,000 barrels of Nigerian oil were being blocked because of militant attacks. Nigeria currently is producing 2.3-million barrels a day, Daukoru said.