- The Washington Times - Wednesday, May 31, 2006


Oil prices declined yesterday after the United States signaled a willingness to hold joint direct talks with Iran on its nuclear program if certain conditions were met.

There was also an expectation in the market that the Organization of Petroleum Exporting Countries (OPEC), which meets today in Venezuela, would keep its output steady.

Light, sweet crude for July delivery fell 74 cents to settle at $71.29 a barrel on the New York Mercantile Exchange. In London, Brent crude slid 64 cents to settle at $70.41 a barrel on the ICE Futures market.

In holding out the possibility of direct negotiations with Iran, Secretary of State Condoleezza Rice said Iran first must agree to stop disputed nuclear activities that the West fears could lead to a bomb.

But Iran rejected this latest diplomatic effort after oil markets closed, calling the offer “a propaganda move.”

Before Iran dismissed the U.S. offer, BNP Paribas Commodity Futures broker Tom Bentz said oil prices would “go right back up again” if Miss Rice’s effort failed.

In Caracas, Venezuela, major oil-producing countries are set to keep crude output unchanged at the OPEC meeting today, despite Venezuela’s calls for cutting production. However, some cartel members hinted at the possibility of trimming supplies down the road.

Yasser Elguindi, senior managing director at Medley Global Advisors in New York, said that just beneath the surface of OPEC’s accommodative stance is the fear of being caught off guard in the second half of the year if weaker economic growth cuts into oil demand or if improved diplomatic relations between the West and Iran helps ease the so-called fear premium in the price of crude.

Nymex gasoline futures fell by less than a penny to close at $2.14 a gallon, heating-oil futures slid 4.34 cents to settle at $1.96 a gallon and natural-gas futures rose by 26.1 cents to close at $6.38 per 1,000 cubic feet.

Last week, data that the agency released showed domestic natural-gas inventories swelling by 83 billion cubic feet in the past week to 2.16 trillion cubic feet, or 50 percent more than the five-year average for this time of year.

Natural-gas futures are near a one-year low, and some analysts say that if inventories continue to grow at this pace, the United States could run out of natural-gas storage capacity before winter, a prospect that should further exert downward pressure on prices.

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