Oil prices fell Wednesday on
signs Iran was responding somewhat positively to a package of incentives by
world powers hoping to curb its nuclear program.
But uncertainty over the outlook will keep a floor under oil prices, analysts
said.
"These geopolitical concerns are going to drive a lot of the movements on the
short-term basis," said Lorraine Tan, director of research at Standard &
Poor's Investment Services in Singapore.
Tan estimated that prices still included a risk premium of about $15 per
barrel.
Light sweet crude for July delivery fell 39 cents to $72.11 a barrel in Asian
electronic trading on the New York Mercantile Exchange, mid-afternoon in
Singapore.
July Brent crude futures on London's ICE Futures exchange fell 21 cents to
$70.60 a barrel.
Also Wednesday, gasoline futures rose marginally to $2.1790 a gallon, while
heating oil prices were down 0.26 cent to $2.04 a gallon. Natural gas prices
fell 0.95 cent to $6.290 per 1,000 cubic feet.
The mood on energy markets has seesawed from day to day in recent weeks with
each diplomatic development between Iran, the United Nations and the United
States over Tehran's nuclear ambitions. The main fear is that Iran could disrupt
oil supplies if provoked by sanctions or some other punishment.
Energy Secretary Samuel Bodman told reporters on Tuesday that if Iran were to
disrupt Gulf oil supplies, the U.S. government would be willing to tap its
emergency oil reserve.
Speaking on state television after receiving the latest proposal from EU
foreign policy chief Javier Solana, Iranian nuclear negotiator Ali Larijani
called the talks with Solana "constructive" and said Iran would respond after
studying the incentives. "The proposals contain positive steps and also some
ambiguities," Larijani said.
Oil prices have traded slightly above and below $70 a barrel for a month now
amid mixed signs on U.S. gasoline consumption, nervousness about the Gulf of
Mexico hurricane season and unease about the Iranian dispute and other
geopolitical uncertainties, including the war in Iraq and violence in oil-rich
Nigeria.
Still, despite the concerns, the market remains well-supplied, according to
many analysts.
Tan said a slightly better supply situation was expected as Saudi Arabia had
expanded its capacity output of light sweet crude.
