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The Wall Street Journal: Oil Prices Fall Nearly $2 a Barrel After Hurricane Fears Recede

August 29, 2006; Page C3

Oil prices dropped nearly $2 a barrel as Hurricane Ernesto weakened to a tropical storm and was forecast to miss the energy-production areas of the Gulf of Mexico.

The October crude contract on the New York Mercantile Exchange settled $1.90 lower to $70.61 a barrel on light volume after hitting an intraday low of $70.15. Ernesto, which over the weekend grew into the first hurricane of a heretofore mild tropical storm season, was downgraded late Sunday, and is now forecast to veer east before making landfall in southern Florida. Natural-gas futures also fell, with the September contract settling 68.5 cents down at a month low of $6.472 a million British thermal units.
With the storm’s threat to oil and gas platforms in the Gulf of Mexico receding, traders bailed out of long bets established last week as the storm began to gather force, said Phil Flynn, an analyst at Alaron Trading Corp., a brokerage firm based in Chicago.

“So many times after a hurricane threat, the market falls harder than it would have if there hadn’t been a storm in the first place,” he said.

Several major oil companies operating in the Gulf of Mexico, including Royal Dutch Shell Group PLC and ConocoPhillips, were expected to remobilize offshore workers evacuated from production platforms over the weekend.

“Last week, the market moved higher as the hurricane gained strength and started making people nervous,” said Edward Meir, an energy analyst at Man Financial in New York. “A lot of the hurricane fears have been receded and that pushed prices lower.”

Easing worries about the international standoff with Iran over its nuclear program have also added to the downward pressure on oil prices in recent days. Although Iran over the weekend opened a heavy-water reactor, there is a growing belief among traders that the standoff will drag on for months as major world powers haggle over ways to rein in Iran’s nuclear ambitions.

In other commodity markets:

ORANGE JUICE: Futures on the New York Board of Trade gained as traders bought up the market on the potential for Tropical Storm Ernesto to cause some damage to Florida’s orange groves. September frozen concentrated orange juice futures rose 1.30 cents to $1.8455 per pound.

COFFEE: Prices on the New York Board of Trade slid as rains fell Sunday in Brazil’s coffee-growing regions after a prolonged dryness. September coffee fell three cents to $1.0320 a pound.

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