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THE NEW YORK TIMES: Oil Prices Fall on Response From Iran

Published: June 7, 2006
Filed at 8:32 a.m. ET

SINGAPORE (AP) — 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 35 cents to $72.15 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. July Brent crude futures on London’s ICE Futures exchange fell 26 cents to $70.55 a barrel.

Gasoline futures fell less than half a cent to $2.1760 a gallon, while heating oil prices were down more than a cent to $2.0312 a gallon. Natural gas prices fell 12 cents to $6.265 per 1,000 cubic feet.

The mood in energy markets has seesawed from day to day recently 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.

”The market is still reacting skeptically to moves from both sides, with the situation remaining rather tense,” PVM Oil Associates said in its daily market report.

Energy Secretary Samuel Bodman said Tuesday that if Iran were to disrupt Gulf oil supplies, the U.S. government would be willing to tap its emergency 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 mainly clung above $70 a barrel 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.

Nigerian militants kidnapped five South Koreans in a bloody overnight raid on a Daewoo Engineering and Construction Co. compound in southern Nigeria, the militants claimed in a statement Wednesday. The militants said the workers were contracting for oil company Royal Dutch Shell PLC at the time.

Several Nigerian soldiers and one of the assailants were killed in a firefight, the Movement for the Emancipation for the Niger Delta said. MEND, the main militant group in Nigeria, has been responsible for a wave of attacks and hostage takings this year in the country’s oil-rich southern delta. The militants say impoverished southern Nigerians aren’t getting enough benefit from the oil revenue flowing from their land.

Nigeria is Africa’s leading oil exporter and the United States’ fifth-largest supplier, usually exporting 2.5 million barrels daily.

Still, despite the concerns, many analysts say the market remains well-supplied. Tan said a slightly better supply situation was expected as Saudi Arabia had expanded its capacity output of light sweet crude.

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