Oil Falls to Below $68 as Iran Tension Ebbs

Posted 05 September 2006 @ 08:23 am EET     Print     Reprint     E-Mail     Comments

LONDON (Reuters) - Oil fell more than a dollar to less than $68 a barrel on Monday, pulled lower by expectations that any sanctions against oil producer Iran were some way off and would not necessarily disrupt export flows. U.S. light sweet crude was down $1.17 to $68.02 a barrel, just off a session low of $67.77.

London Brent crude settled at $67.71, $1.44 a barrel below Friday's close. Its session low was $67.59, the lowest level since June 21.Trading volumes were light as the New York Mercantile Exchange pit was closed on Monday to mark the Labor Day holiday. U.S. futures were only trading electronically and the ICE exchange, where Brent trades, closed early.

U.N. Secretary-General Kofi Annan on Monday stressed the need to avoid a confrontation with Iran. He was speaking after a visit to the OPEC oil producer, during which he said Iranian President Mahmoud Ahmadinejad had reaffirmed Iran's willingness to negotiate a solution to the nuclear dispute, although he said it would not suspend uranium enrichment.Iran failed to meet an August 31 deadline to halt its enrichment program or run the risk of U.N. sanctions.

"All along the nuclear issue has been a lengthy play of many acts. Probably, we're coming up to another act, which is sanctions, but there are likely going to be negotiations of what these sanctions are," said Mike Wittner of Calyon bank. The United States has led the call for sanctions, which analysts fear could lead Iran to disrupt oil flows in retaliation. The European Union has said it wants more talks.

CONTINUING SLIDE

Monday's selling followed a more than $3 slide last week. Since a record of $78.65 for Brent on August 8, oil prices have fallen steeply by more than $10 a barrel.Analysts predicted the bearish trend would continue in the near term, although they said there were factors that could drive the price higher again, notably the U.S. hurricane season, which continues until the end of November.Hurricanes last year devastated oil and gas infrastructure in the U.S. Gulf and pushed oil prices to then record highs.

So far, this season has been milder than expected and Colorado State University's hurricane research team on Friday cut its outlook for this year's Atlantic storm season to five hurricanes, four less than forecast in May. The sixth tropical depression of the 2006 season formed on Sunday between Africa and the Lesser Antilles, and could reach hurricane status by Thursday as it headed north of the Caribbean islands, the U.S. National Hurricane Center said. Despite the fall from record levels, oil prices are still historically high.

As a result, the Organization of the Petroleum Exporting Countries (OPEC), which meets in Vienna next Monday to reconsider its output policy, is expected to continue pumping at close to capacity.