- The Washington Times - Thursday, May 4, 2006


Oil prices sank more than $2 a barrel for the second straight day yesterday, falling below $70 as traders focused on U.S. government data that show gasoline supplies grew last week, reversing two months of declines.

“It has largely been a technical sell-off,” said ABN Amro broker Lee Fader. “Some of the air is coming out of the bubble.”

The sell-off coincided with a House Energy and Commerce Committee decision to send letters to major oil companies seeking detailed information about their investment priorities, particularly in the area of U.S. refining capacity, which has been tight and a factor contributing to soaring pump prices.

After falling as low as $69.30 a barrel, light sweet crude for June delivery settled at $69.94, a decline of $2.34 on the New York Mercantile Exchange. Prices had plunged $2.33 Wednesday after the U.S. Energy Department released its weekly report showing a supply rise as refineries boost output and demand flattens.

Many analysts think the government data point to a consumer response to pump prices that exceed $3 a gallon in many parts of the country.

Gasoline futures tanked by 9.11 cents to close at $1.9946 a gallon, and some analysts say it could be a sign that the 2006 highs for retail gasoline prices in the U.S. are behind us — assuming there is no repeat of last summer’s ferocious hurricane season in the Gulf of Mexico.

“Never underestimate the capability of markets to overreact and shift moods with no stability in between,” said analyst Tom Kloza of Oil Price Information Service in Wall, N.J.

In London, Brent crude futures lost $2.36 to close at $70.29 a barrel on the ICE Futures exchange.

Although Nymex oil futures have fallen more than $5 from their intraday peak of $75.35 reached April 21, prices remain roughly 40 percent higher than a year ago and analysts do not expect them to free-fall any time soon given the high level of geopolitical tensions.

“We’re getting a very sizable sell-off and rightfully so given how quickly we went straight up,” said James Cordier, president of Liberty Trading in Tampa, Fla. “Gas prices should come down a bit in the next few weeks … but I think we’re going to go back up. There’s too many factors ahead of us.”

The most pressing source of anxiety in the market stems from fears that Iran, a key oil exporter, could cut supplies because of international pressure to modify its nuclear program. Unrest in Nigeria, war in Iraq and rising resource nationalism in South America have added to oil-market worries.

About 500,000 barrels per day of Nigerian production, most of it operated by Royal Dutch Shell PLC, remains off line because of violence there, and more than 300,000 barrels per day of production remains shut down in the Gulf of Mexico since Hurricane Katrina smacked offshore platforms.

Strong global demand and a limited supply cushion magnify the significance of these events, while a surge of investors betting on oil and other commodities also has lifted prices.

“Make no mistake, even if the market endures a $5 or $6 correction, that wall of worry is not coming down, nor are prices,” said John Kilduff of brokerage Fimat USA Inc.

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