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Oil Prices Dip As Oil, Gas Inventories Rise

Posted on: Wednesday, 1 February 2006, 12:00 CST

WASHINGTON - Crude oil futures prices fell Wednesday after the U.S. government released data showing crude oil and gasoline supplies on the rise. But prices are still hovering near $68 a barrel, and the market remains jittery about geopolitical tensions ranging from the West's nuclear standoff with Iran to the war in Iraq and unrest in Nigeria.

In its weekly petroleum supply report, the Department of Energy said commercial inventories of crude oil climbed last week by 1.9 million barrels to 321 million barrels, or 11 percent above year ago levels. Gasoline inventories grew by 4.2 million barrels to 219 million barrels, or roughly equal to last year's level.

Light sweet crude for March delivery slipped 17 cents to $67.75 a barrel in morning trade on the New York Mercantile Exchange, where gasoline futures fell 3 cents to $1.775 a gallon.

The Energy Department report showed a slight decline in inventories of distillate fuels, which include diesel and heating oil. Nymex heating oil futures were essentially flat at $1.85 a gallon, while natural gas futures gained 23 cents to $9.553 per 1,000 cubic feet.

Iran, the Organization of Petroleum Exporting Countries' second-largest oil producer, insists its nuclear program is aimed at generating electricity, but the U.S. and other countries fear the research could be used to create nuclear weapons.

The U.S., Britain, France, China and Russia say Iran should appear before the U.N. Security Council, which could impose sanctions. They have called on the International Atomic Energy Agency, the U.N. nuclear watchdog, to report the Iran case when it meets Thursday.

Even though Iran's oil minister Kazem Vaziri Hamaneh has said Iran won't link the country's oil exports to its nuclear dispute, analysts said tensions over the issue would prevent any sharp decline in crude futures.

"We still feel that despite the Iranian oil minister's assertions, the threat of halting oil exports is a very effective bargaining chip, which is maintaining a healthy risk premium in the market," said Sucden Commodity brokers.

Although markets have been jittery over Iran, Saudi Arabian Oil Minister Ali Naimi said at no time did concerns about that bear on this week's OPEC decision.

OPEC's decision was expected, but ministers seemed divided over whether a reduction in production could be ahead.

Qatari oil minister Abdullah bin Hamad al-Attiyah said a cut in output would be discussed at the March meeting. But Naimi and OPEC President Edmund Daukoru say a cut is unlikely.

In his State of the Union speech Tuesday night, President Bush declared that America must break its dependence on Mideast oil. He outlined plans to increase federal spending on research into alternative motor fuels and to set "a national goal" of replacing 75 percent of the oil now imported from the Middle East. Less than 20 percent of U.S. oil imports come from the region.

The president's litany of initiatives is similar to what he has long advocated and reflects many of the same alternative fuel proposals included in a broad energy bill he signed into law last summer.

Source: Associated Press/AP Online

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