- The Washington Times - Friday, May 19, 2006

From combined dispatches

Oil prices fell to a six-week low of less than $69 a barrel yesterday after Iran said it won’t cut production and may allow greater access to United Nations nuclear inspectors.

The drop in oil prices comes as gold, silver, copper and other metals fell by the most in 25 years this week after touching record highs. Commodities from oil to nickel have been bullish investments, but they all were hit this week by signs that high prices are dampening demand and causing an increase in inflation that is prompting the world’s central banks to aggressively raise interest rates.

“This is all part of a broad drop in commodities,” said Justin Fohsz, a broker at Starsupply Petroleum. “It’s absolute carnage. Copper and gold are getting creamed.”

The fall in oil prices from a peak of more than $75 last month has been more limited than the downdraft in precious metals, largely because of tight supplies and persistent geopolitical tensions such as the nuclear standoff with Iran that have added to oil’s price.

“With the Iran worries reduced, oil can join the other commodities and fall on inflation and recession concerns,” said Peter Beutel, president of Cameron Hanover Inc., an energy consultant.

Iran’s top nuclear negotiator, Ali Larijani, yesterday said he had a “positive” meeting with the International Atomic Energy Agency’s Mohamed ElBaradei.

“It was a positive meeting, where ways to move forward were discussed,” Iran’s ambassador to the U.N. agency, Ali Asghar Soltanieh, who attended the meeting in Vienna, Austria, said. Iran pledged to continue allowing inspections required under the nuclear Non-Proliferation Treaty.

U.N. inspectors have been unable to assure that Iran’s nuclear research is exclusively for peaceful activities. The United States accuses Iran of using its nuclear research as cover for the development of atomic bombs, though Iran insists the program is aimed solely at developing nuclear power.

In another softening of Iran’s usually hawkish oil rhetoric, the Islamic Republic’s minister to the Organization of Petroleum Exporting Countries said the group was not likely to cut production at its June meeting despite signs of surplus supply in the market.

“The fundamentals call for a cut,” Hossein Kazempour Ardebili said, but the group would keep producing at high levels so as to reassure markets troubled by political concerns. OPEC has been producing flat-out at its ceiling of 28 million barrels a day for 10 months.

“The market took to heart the conciliatory talk out of Iran,” said John Kilduff, an energy analyst at Fimat USA.

Premium crude prices fell 92 cents to $68.53 a barrel on the New York Mercantile Exchange, the lowest close since April 7. Prices dropped 4.9 percent this week, the biggest weekly decline since March. Oil prices hit a record of $75.35 in New York trading on April 21.

“Rising interest rates, the effect of high energy prices on inflation and slower economic growth are reducing demand growth,” said Antoine Halff, another analyst with Fimat. “It doesn’t mean that prices will collapse because there are supply-side problems. Supply growth in Russia, Iran and Venezuela is slipping, regardless of the potential for disruptions in Nigeria and Iran.”

Other analysts agreed that oil prices are not likely to collapse anytime soon.

“The medium-term picture still looks pretty bullish to us. The mid-60s is about as low as it will go,” said Kevin Norrish, an analyst at Barclays Capital.

The Reuters/Jefferies CRB Index of 19 commodities fell 6.4 percent this week, the most since December 1980, after reaching a record on May 11.

“Oil is moving in sympathy with other commodities,” said Alexander Kervinio, analyst at SG CIB Commodities.

“People are still worried about inflation, and we don’t have anything new to push oil higher.”

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