Oil prices retreat after Israel distances itself from Mofaz comments on attacking Iran

Prime Minister Ehud Olmert and other officials noted that Mofaz had not been expressing official government policy.

June 10, 2008 09:30
2 minute read.
mofaz 298.88

Mofaz 224.88. (photo credit: Ariel Jerozolimski [file])


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Oil futures retreated Monday as investors sold to lock in profits from a record surge late last week, though oil prices may be headed even higher. Prices for light, sweet crude for July delivery fell $2.68 to $135.86 a barrel in volatile trading Monday on the New York Mercantile Exchange. Last week, oil prices rose nearly 14 percent in two days, trading as high as $139.12 a barrel, after slumping more than $13 from a previous record high. "There's some profit taking going on, which is understandable after that sort of move," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. One of the factors that underpinned Friday's rally - Transportation Minister Shaul Mofaz's comment that his nation might attack Iran if it didn't halt its nuclear program - appeared to dissipate over the weekend as Prime Minister Ehud Olmert distanced himself from the comments and other officials noted that Mofaz had not been expressing official government policy. But other factors support high oil prices. An explosion last week at a natural gas production facility in Australia has boosted demand for diesel by that country's mining sector, Armstrong said. In Nigeria, a major US oil supplier, a strike later this week could take 450,000 barrels in daily oil supplies off the market, Armstrong said. Both events highlight how tight oil supplies are. Friday's price jump was aided by a Morgan Stanley analyst's prediction that strong demand in Asia and tight supplies in the Western Hemisphere could drive prices to $150 a barrel by early July. But the upward swing in crude began Thursday, after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation. "Trichet has managed what no war, no hurricanes, no OPEC has ever managed to do," analyst Olivier Jakob from Petromatrix in Switzerland said in a research report. Trichet's statements "shocked the financial system," Jakob said, and sent the dollar falling against the euro. Many investors buy commodities such as oil as a hedge against inflation when the US dollar weakens. On Monday, the effect reversed; the dollar gained ground, making oil less effective as an inflation hedge. Also, a stronger dollar makes oil more expensive to investors overseas. Some analysts see warning signs in Friday's bold oil price jump. "It was a freakish oil market Friday as the market's worst fears - some real and some imagined - exploded into a rhapsody of wild buying," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago, in a research note. The $10.75 move had some of the hallmarks of a "blow-off top," Armstrong said, or a rapid, explosive runup in prices that's followed by steep declines. Still, it's far to early to tell for sure, he added. "You never know you've been in a bubble until it's gone," Armstrong said. In other Nymex trading Monday, July gasoline futures fell 10.29 cents to $3.4451 a gallon, and July heating oil futures fell 8.04 cents to $3.8936 a gallon. July natural gas futures fell 7.2 cents to $12.621 per 1,000 cubic feet. In London, July Brent crude was down $2.70 to $134.99 a barrel on the ICE Futures exchange.

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