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Oil Prices Fall for Third Day, Still Above $70 a Barrel

Posted on: Friday, 9 June 2006, 06:00 CDT

By Barbara Hagenbaugh

Oil prices fell for a third-straight day Thursday as investors bet the killing of a key Iraqi insurgent would lead to increased oil production in the petroleum-rich country.

After dipping below $70 during the day, the price of a barrel of crude oil trading in New York closed at $70.35, down 47 cents from Wednesday. Prices are down 3.1% from Monday.

The decline Thursday followed news that U.S. forces killed terrorist Abu Musab al-Zarqawi, the leader of al-Qaeda in Iraq, Wednesday.

"This news is a big deal," Bill O'Grady, assistant director of market analysis at A.G. Edwards in St. Louis, said in a note to clients.

"I don't necessarily think that we will see a surge in Iraqi oil production in the short run," he said, noting there are still insurgents operating in Iraq. However, over time, a stable Iraq is one likely to be open to foreign investment, which could mean more supply down the road."

Iraq has a wealth of untapped and unexplored oil potential, according to the Energy Department. Some estimates put Iraq's oil reserves as third-largest in the world, following Saudi Arabia and Canada.

But production has seesawed for decades as Iraq has been confronted not only by wars but by a number of obstacles, such as damaged oil fields, poor maintenance, outmoded techniques and technology and export embargos.

Iraq produced an average 1.88 million barrels of oil per day last year, according to the U.S. Energy Department. That was down 27% from January 2003, before the war began.

The news out of Iraq was the latest to fuel oil price declines. Also this week, the U.S. government reported unexpected increases in inventories of both oil and gasoline, while Iran showed signs it may be willing to compromise on its nuclear program. That could reduce the likelihood of sanctions on the second-biggest oil producer in OPEC.

Oil prices could drop to $60 a barrel this summer, provided things continue to go well with Iran and remain peaceful in other producing countries such as Venezuela and Nigeria, which have been unstable, says Jim Williams of WTRG Economics, an energy consulting firm in London, Ark. Hurricanes in the USA that could halt production or reduce refinery output remain another key wild card.

But, "there is virtually no fundamental data that don't point to lower prices," he says.

Oil is used in the production of a number of products and accounts for half of the retail gasoline cost.

Gasoline prices rose for the fourth-consecutive day Thursday, according to motor club AAA and the Oil Price Information Service. The nationwide average price for a gallon of regular was $2.888, up less than a penny from Wednesday, but 77 cents higher than a year ago and the highest since May 22.

*How the U.S. found Zarqawi, what his death means, 1A, 6-8A

*No stock rally on the news, 1B

(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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