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Oil Prices Drop Nearly $1 a Barrel

Posted on: Thursday, 10 August 2006, 09:00 CDT

LONDON - Crude oil prices fell nearly $1 a barrel Thursday after thwarted attacks on airplanes led many carriers to cancel flights, and could mean lower demand for jet fuel and dent consumer confidence.

Light, sweet crude for September delivery dropped 85 cents to $75.50 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. September Brent crude futures on London's ICE Futures fell 98 cents to $76.30 a barrel.

"The price fall this morning is on the back of the airline bomb plot which is negative jet demand and consumer confidence," said Olivier Jakob at Petromatrix.

Gasoline futures dropped 4 cents to $2.1280 a gallon. Heating oil futures fell 3 cents to $2.0750 a gallon, and natural gas futures lost 15 cents to $7.500 per 1,000 cubic feet.

But traders felt the fact that there was no actual attack would limit the price impact, with underlying sentiment for higher prices focused on lower gasoline inventories, geopolitical worries and production cuts from a pipeline shutdown in Alaska and unrest in Nigeria.

In Nigeria, officials said gunmen seized two foreign oil workers Thursday amid the surge of violence targeting the petroleum industry in Africa's oil giant.

Southern Nigeria, where most of the nation's crude is pumped, has seen violence against the petroleum industry rising. The kidnappings and attacks have forced a nearly 20 percent reduction of Nigeria's usual 2.5 million barrel daily production.

Prices also continue to be inflated by the standoff between the United Nations and Iran over the nuclear program of the No. 2 oil producer in OPEC, as well as fighting in the Middle East between Israel and Hezbollah, which threatens to disrupt production in the region.

On Wednesday the U.S. government reported drops in crude, gasoline and distillate fuel inventories - aggravating concerns about a supply shortage from the shutdown of a major pipeline in the U.S. state of Alaska.

U.S. crude inventories fell 1.1 million barrels to 332.6 million barrels last week, the Energy Information Administration said, still more than 4 percent above year-ago levels.

Gasoline inventories fell 3.2 million barrels to 207.7 million barrels - less than 1 percent above last year's levels, and in the lower half of the average range for this time of year.

BP PLC is shutting down 400,000 barrels of daily oil production - about two-thirds of which belongs to ConocoPhillips and Exxon Mobil Corp. - at Prudhoe Bay in Alaska.

U.S. crude inventories are near five-year highs, but the Organization of Petroleum Exporting Countries' spare capacity is tight - about 1.1 million to 1.3 million barrels a day, mostly in Saudi Arabia, the EIA estimated Tuesday.

U.S. Energy Secretary Samuel Bodman had said extra supplies can replace oil lost from the Alaska shutdown, and that a complete shutdown might not be necessary.

Source: Associated Press/AP Online

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