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Oil drops sharply as supply worries subside
(Agencies)
Updated: 2008-07-08 08:56 NEW YORK -- Oil prices tumbled nearly $4 a barrel Monday, erasing many of last week's record gains in a single session as concerns about potential supply disruptions eased. Light, sweet crude for August delivery fell $3.92, or about 2.7 percent, to settle at $141.37 on the New York Mercantile Exchange. Earlier, the contract sank as low as $139.50, or $5.79 below Thursday's settlement price. Traders drove prices sharply higher at the end of last week as they bet that conflict with Iran or some other event could cut supplies, and they didn't want to get caught unprepared over the long Independence Day weekend, analysts said. There was no floor trade Friday in the US because of the July Fourth holiday.
As concerns about supply disruptions subsided, many traders on Monday sold off contracts they had bought as insurance last week. "We got through the holiday without any major news," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "No news is good news, or in this case, no news is bearish news." After the last few weeks' run-up, however, analysts were skeptical that the drop signaled the start of a long-term decline. Prices set records in each of the previous six sessions. "We're just moving into a new and higher trading range" of about $140 to $146 a barrel, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "We'll probably consolidate there for a week or two ... then probably push back into new record territory." In the U.S., record retail fuel prices edged even higher as Americans made their way home at the end of the long weekend, typically one of the busiest driving periods of the year. A gallon of regular gasoline now costs $4.108, a tenth of a penny more than the previous day's high, according to AAA, the Oil Price Information Service and Wright Express. Diesel is also at a record, of $4.801, up nearly a penny. Americans are now paying more than $1 billion more for gasoline per day than they did five years ago, according to an OPIS report Monday. In June, the world's largest oil consumer spent about $47.38 billion on the motor fuel -- nearly three times as much as in 2003.
Fred Rozell, retail pricing director at OPIS, said retail gas costs will likely continue to rise. He joined a number of analysts in predicting oil prices still have further to climb, and said that could push prices at the pump up by as much as 25 to 30 cents per gallon more before the end of summer. "It doesn't look like there's anything that's going to drive (oil) prices down at this point, even reduced demand," Rozell said. "There's so much momentum with money going into commodities right now, it's going to continue to go up." Fears that a fresh conflict in the Middle East could cut oil supplies eased over the weekend. Javier Solana, the European Union foreign policy chief, said he received a letter from Iran on Friday responding to an offer of incentives meant to persuade Iran to halt enrichment. He also said he had a lengthy conversation with Iran's top nuclear negotiator, Saeed Jalili, that was "constructive in principle." Iranian state media reported that Solana had agreed to talks in the second half of July, but the EU official could not confirm the accuracy of those reports. He did not rule out the possibility of a meeting, however. Meanwhile, Tropical Storm Bertha was upgraded to become the first Atlantic hurricane this year. Fears that the storm might threaten oil and natural gas installations in the Gulf of Mexico subsided as the storm was expected to head far to the north. Oil hit a trading record of $145.85 on Thursday in New York before settling at a record close of $145.29 a barrel. A falling dollar has helped boost oil prices around 50 percent this year as investors often buy commodities such as oil as a hedge against inflation when the greenback weakens. Also, a struggling dollar makes oil less expensive to investors overseas. The dollar fell marginally against the euro Monday. In other Nymex trade, heating oil futures fell by 13.64 cents to settle at $3.9696 a gallon while gasoline futures sank 8.83 cents to settle at $3.4827 a gallon. Natural gas futures fell 60 cents to settle at $12.977 per 1,000 cubic feet. In London, August Brent crude fell $2.55 to settle at $141.87 a barrel on the ICE Futures exchange. |
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