Oil prices continue fall in response to Iran's positive remarks on incentives deal

Expert: Prices still include "risk premium" of about $15; US will tap emergency reserve if Gulf oil supply disrupted.

June 7, 2006 11:16
1 minute read.
Oil prices continue fall in response to Iran's positive remarks on incentives deal

oil 88. (photo credit: )


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Oil prices fell Wednesday on signs Iran was responding somewhat positively to a package of incentives by world powers hoping to curb its nuclear program. But uncertainty over the outlook will keep a floor under oil prices, analysts said. "These geopolitical concerns are going to drive a lot of the movements on the short-term basis," said Lorraine Tan, director of research at Standard & Poor's Investment Services in Singapore. Tan estimated that prices still included a risk premium of about US$15 per barrel. Light sweet crude for July delivery fell 39 cents to US$72.11 a barrel in Asian electronic trading on the New York Mercantile Exchange, mid-afternoon in Singapore. July Brent crude futures on London's ICE Futures exchange fell 21 cents to US$70.60 a barrel. Also Wednesday, gasoline futures rose marginally to US$2.1790 a gallon (3.8 liters), while heating oil prices were down 0.26 cent to US$2.04 a gallon. Natural gas prices fell 0.95 cent to US$6.290 per 1,000 cubic feet. The mood on energy markets has seesawed from day to day in recent weeks with each diplomatic development between Iran, the United Nations and the United States over Tehran's nuclear ambitions. The main fear is that Iran could disrupt oil supplies if provoked by sanctions or some other punishment. Energy Secretary Samuel Bodman told reporters on Tuesday that if Iran were to disrupt Gulf oil supplies, the US government would be willing to tap its emergency oil reserve. Speaking on state television after receiving the latest proposal from EU foreign policy chief Javier Solana, Iranian nuclear negotiator Ali Larijani called the talks with Solana "constructive" and said Iran would respond after studying the incentives. "The proposals contain positive steps and also some ambiguities," Larijani said. Oil prices have traded slightly above and below $70 a barrel for a month now amid mixed signs on US gasoline consumption, nervousness about the Gulf of Mexico hurricane season and unease about the Iranian dispute and other geopolitical uncertainties, including the war in Iraq and violence in oil-rich Nigeria. Still, despite the concerns, the market remains well-supplied, according to many analysts. Tan said a slightly better supply situation was expected as Saudi Arabia had expanded its capacity output of light sweet crude.

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