Oil drops below $105 as repair of Iraqi pipeline eases supply concerns

Oil drops below $105 as repair of Iraqi pipeline eases supply concerns
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First Published: Mon, Mar 31 2008. 09 58 AM IST
Updated: Mon, Mar 31 2008. 09 58 AM IST
Singapore: Oil prices fell below $105 a barrel Monday as supply concerns eased on news that Iraq’s oil exports and refining operations in the south have been restored after attacks and power outages disrupted operations.
An official from Iraq’s South Oil Co. said Saturday that “everything returned to normal as of 10 p.m. Thursday” after the bombing of a key oil export pipeline in Basra earlier in the day.
Word of Thursday’s attack had raised concerns that Iraqi exports would fall sharply and sent oil prices surging higher. Basra has faced fierce clashes since fighting broke out Tuesday between government security forces and Shiite militia fighters.
“The oil price has been pulling back because the disruption in the oil pipeline supply in Iraq has been resolved,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Thursday’s attack was the second pipeline bombing since the security crackdown was kicked off in Basra, which is about 550 kilometers (340 miles) southeast of Baghdad and accounts for most of Iraq’s oil exports and output.
Light, sweet crude for May delivery dropped 67 cents to $104.95 a barrel in Asian electronic trading on the New York Mercantile Exchange by midmorning in Singapore. The contract fell $1.96 to settle at $105.62 a barrel Friday.
Meanwhile, the dollar strengthened against the euro, making oil and other commodities less appealing as a hedge against inflation. A stronger dollar also makes oil more expensive to overseas investors.
Concerns about the US economy also weighed on futures. The Commerce Department said consumer spending edged up by just 0.1% last month, the poorest showing since September 2006. Energy investors worry that a cooling economy will use less fuel.
“In the coming weeks, barring any new supply side concerns, the weaker fundamentals in the US market will likely pull back prices,” Shum said. “The latest oil product demand data out of the US show a soft market.”
Analysts are split on oil’s direction. Many think prices will rise to new records in coming months as the dollar resumes its decline. The US Federal Reserve is expected to cut interest rates several more times this year, and lower interest rates tend to weaken the dollar. Many analysts say the weaker dollar has been largely responsible for oil’s run to a record near $112 a barrel earlier this month.
In other Nymex trading, heating oil futures added 0.1 cent to US$3.106 a gallon (3.8 litres) while gasoline prices were unchanged at $2.717 a gallon. Natural gas futures rose 7 cents to $9.87 per 1,000 cubic feet.
Brent crude futures dropped 43 cents to $103.34 a barrel on the ICE Futures exchange in London.
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First Published: Mon, Mar 31 2008. 09 58 AM IST