Oil Prices Decline As Supply Fears Ease

By MADLEN READ

NEW YORK – Crude-oil prices fell more than $2 a barrel Tuesday after the U.S. Department of Energy lowered its global oil demand estimate, and as traders expect the agency to report an increase in U.S. oil inventories Wednesday.

Light, sweet crude for March delivery fell $2.02 to settle at $63.09 a barrel Tuesday on the New York Mercantile Exchange, after dropping as low as $63 a barrel.

Fears over possible disruptions to the Iranian oil supply because of its nuclear ambitions took a back seat to the sense that overall, energy supplies are ample.

PVM Oil Associates in Vienna said Tuesday that U.S. weekly inventory data to be released Wednesday is expected to show gasoline supplies rose by 1.6 million barrels and crude-oil supplies rose by 860,000 barrels, putting crude stocks about 9 percent higher than last year’s level.

“Clearly, the market is fundamentally overpriced, and in front of the impending numbers tomorrow, you had tremendous profit-taking,” said Steve Bellino, a senior vice president at Energy Risk Management. “The market looks like it’s broken down a bit.”

Nymex heating oil lost 7.1 cents to settle at $1.6918 a gallon, while gasoline fell 5.02 cents to settle at $1.5940 a gallon. Natural gas slipped 13.7 cents to settle at $7.858 per million British thermal units.

Also pressuring prices, the Energy Department’s Energy Information Administration on Tuesday revised its forecast of global demand in the first quarter to 85 million barrels a day – 300,000 barrels a day lower than predicted a month ago. U.S. oil demand in the first quarter was revised downward by 220,000 barrels a day to 20.67 million.

Analysts added that the market had already factored in the risk to energy supplies posed by Iran’s nuclear standoff with the United States and other countries, and because of the milder-than-usual winter in the United States.

“With the inventories where they are, and prices were they are, they don’t equate,” Bellino said. “It’s geopolitical tension that’s holding us up right now.”

The International Atomic Energy Agency board of governors voted Saturday to report Iran to the U.N. Security Council, which can impose sanctions, over its nuclear program. Tehran responded by saying it would start full-scale uranium enrichment and bar surprise inspections of its facilities.

“Between now and when the U.N. Security Council actually takes up the issue, there will be some saber-rattling. But in the near term traders know there won’t be any disruption to supply from it,” said energy analyst Victor Shum of Purvin & Gertz in Singapore.

Iran insists it only wants to generate electricity, but the United States and some of its allies contend Tehran is trying to build a weapon.

The head of the IAEA, Mohamed El-Baradei, said Iran – the second-largest oil producer in the Organization of Petroleum Exporting Countries – announced a sharp reduction in the number and kind of IAEA inspections, effective immediately.

Saudi oil minister Ali Naimi said Tuesday at an industry conference in Houston that finding, producing and maintaining a barrel of oil costs $45 to $50, but limited excess production capacity is inflating prices.

Naimi estimated global demand would grow by 1.4 million barrels per day over the next year.

Without specifically naming the United States or President Bush, Naimi seemed to allude to the president’s recent call for the U.S. to reduce its dependence on oil, especially Middle East oil.

“Government policies aimed at reducing oil demand create another element of uncertainty for producers,” Naimi said. “This added risk is detrimental to timely investment decisions.”

Naimi said Saudi Arabia plans to boost its crude-oil production capacity by 1.5 million barrels a day over the next four years, bringing total capacity to 12.5 million barrels per day by the end of the decade.

Naimi said, half-jokingly, that Saudi Arabia’s plans to boost supply beyond that level could be complicated by “all the talk of not wanting our oil.”

Naimi estimated the world currently has 2 million barrels per day, “or less,” of excess production capacity. “We would be more comfortable if we had between 5 to 7 million” barrels per day, assuming daily global demand of about 85 million barrels per day.

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AP Business Writer Brad Foss contributed to this article.