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Oil prices jump as Iran back in the frame
AFP
NEW YORK
Petroleumworld.com 05 10 06
World oil prices rebounded on Tuesday after the United States dismissed a letter from the Iranian president that failed to address a crisis over his country's nuclear ambitions.
New York's main contract, light sweet crude for delivery in June, rose 92 cents to close at 70.69 dollars a barrel.
In London, Brent North Sea crude for June delivery advanced 87 cents to end at 71.08 dollars a barrel.
Oil prices had fallen Monday on the shock news that Iranian leader Mahmoud Ahmadinejad had written to US President George W. Bush, interrupting a 26-year break in top-level contacts between the bitterly opposed nations.
Hopes rose that Ahmadinejad was extending an olive branch over Iran's nuclear drive, which has triggered crisis talks among the world's most powerful nations amid talk of UN sanctions.
But in the event, the 18-page message was revealed to be a rambling, anti-Western tirade that offers no concessions in the nuclear dispute but calls on Bush, a born-again Christian, to be more pious.
Crude futures pushed higher after the US government said it would not be making any formal response to the unexpected letter.
"We've already given our response," National Security Council spokesman Frederick Jones told AFP, referring to various statements by Secretary of State Condoleezza Rice and other US officials rejecting the letter.
The frosty reception was of no surprise, Fimat oil analyst Mike Fitzpatrick said.
"Even though Ahmadinejad's letter to President Bush was the first to an American president by an Iranian leader since 1979, no serious market participant thought for a second that it would contain anything of substance addressing Iran's intransigence over its nuclear ambitions," he said.
Analysts fear that any action against Iran would disrupt the Islamic republic's crude exports, which are the second highest in the Organisation of Petroleum Exporting Countries (OPEC) behind Saudi Arabia's.
The market also found support Tuesday from comments by Saudi Arabia's oil minister, Ali al-Naimi, who said he believes oil prices will hold steady this decade as global refining capacity will be a problem for the next four years.
"OPEC, the bulk of whose spare capacity lies with Saudi Arabia, should be able to meet expected growth in global crude demand, barring multiple breaks in supply," Fitzpatrick said.
"But refining capacity is still the crucible on which it will be determined whether prices continue to rise."
The oil-producing cartel next meets on June 1 in the Venezuelan capital Caracas, but its members have repeatedly said that they are pumping as much as they can and so are powerless to bring down prices.
But bearish traders are betting that news of stronger US gasoline supplies will hasten a retreat from a recent record-breaking rally by oil prices.
The US Department of Energy will Wednesday release its latest weekly oil inventory figures. Last week, the market was caught by surprise when the DoE said US gasoline stocks had risen, rather than falling.
Gasoline reserves are in focus ahead of the US summer driving season, when demand for motor fuel traditionally peaks.
"Despite the big snap-back (Tuesday) and the possibility that that could be the end of the correction, I still think the market is not quite done probing the downside," Alaron Trading's Phil Flynn said.
He noted that news of further supply disruptions or fresh tensions over Iran could drive prices back up.
"But rising supply of gasoline should, at least for the near term, cap the rallies. We still would try to assess a time to possibly sell into the rallies," he said.
AFP 05 09 06 2005 GMT
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