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Oil Prices Drop Below $70 Per Barrel

Posted on: Thursday, 8 June 2006, 06:00 CDT

By GEORGE JAHN

VIENNA, Austria - Oil prices dipped below $70 per barrel for the first time in two weeks Thursday following the announcement of the death of al-Qaida's leader in Iraq, terrorist leader Abu Musab al-Zarqawi.

Word by Nigerian militants that they would release foreign hostages and an easing of world tensions over Iran also calmed markets, which were already on a downward course after U.S. data showed ample crude and gasoline supplies.

"The hope is that with the removal of the terror leader in Iraq, the Iraqi situation will stabilize faster and future oil supply could increase," said Victor Shum, energy analyst with Purvin & Gertz in Singapore.

The Jordanian-born militant led a campaign of suicide bombings, kidnappings and other violence. Insurgents have also sabotaged pipelines numerous times.

Light sweet crude for July delivery fell more than a dollar on the announcement in Baghdad that al-Zarqawi had been killed in an air raid. By midday in Europe, it was down 98 cents at $69.84 a barrel on the New York Mercantile Exchange.

July Brent crude futures on London's ICE Futures exchange fell 96 cents to $68.23 a barrel.

Thursday's slide in oil prices continued a two-day trend as the market adjusted to U.S. government data showing higher crude oil and gas inventories and some easing of tensions over Iran's nuclear program.

"If there are indications of a rapid diplomatic solution, prices could fall quite quickly to the mid-60s (per barrel)," Shum said. "But the general market feeling is that it will still take weeks to resolve the issue."

Iran has said it would study a package of incentives by world powers hoping to curb its nuclear program.

For Nigeria, Vienna's PVM Oil Associates noted that "following months of attacks and kidnappings some 611,000 barrels a day of Nigerian crude remains shut in." Still, tension there also ebbed Thursday, with militants in the oil-rich delta region saying they would release five kidnapped South Korean oil workers.

Despite the geopolitical jitters, the oil market remains well-supplied.

In its weekly report Wednesday, the Energy Department said U.S. crude-oil stocks grew last week by 1.1 million barrels to 346.6 million barrels, or 4 percent above year-ago levels. Gasoline inventories grew by 1 million barrels to 210.3 million barrels, or 2.5 percent below year-ago levels.

The commercial supply of distillates, which include heating oil and diesel, increased by 1.8 million barrels to 120.7 million barrels, or 8.5 percent more than a year ago.

On a week-to-week basis, the agency's report showed a slight decline in refinery output and gasoline demand. Over the past four weeks gasoline demand is 0.7 percent higher than it was during the same period a year ago.

Gasoline and heating oil futures were both down by more than 2 cents, at $2.0945 and $1.9685 a gallon, respectively. Natural gas rose more than 4 cents to $6.020 per 1,000 cubic feet.

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Associated Press writer Tanalee Smith in Singapore contributed to this report.

Source: Associated Press/AP Online

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