Oil prices drop as lower demand seen

Traders work the pit on the floor of the New York Mercantile Exchange on Friday in New York City. Oil prices have yet to be affected after a gasoline pipeline explosion killed up to 200 people in Nigeria on Friday. PHOTO: AFP

World prices fell on Friday after the Interna-tional Energy Agency (IEA) lowered its forecast for global oil demand this year and foreign hostages were freed in major crude producer Nigeria.

New York's main contract, light sweet crude for delivery next month, dropped US$1.42 dollars to UD$72.04 per barrel in closing deals.

In London, Brent North Sea crude for June delivery lost US$1.11 to close at US$72.32.

Prior the falls, prices had risen by about US$2 since Wednesday due to the abduction of three foreign workers in the Nigerian oil city of Port Harcourt, Iran's nuclear crisis and tight gasoline stocks in the US.

Crude were lower on Friday "as a report from the IEA cut its 2006 forecast for demand growth by 200,000 barrels per day [bpd] to 1.25 million bpd as high prices have slowed consumption," Sucden analysts said in London.

The report was "clearly bearish," said James Williams, analyst at WTRG Economics.

John Kilduff at Fimat USA said that slowing global economic activity may reduce demand, but that he does not expect much relief from high prices.

"The bottom line continues to be that while some economic damage is being wreaked by high prices, it is not enough, for now, to overwhelm the seeming surfeit of geopolitical troubles in oil producing countries around the world," he said.

Regarding Nigeria, police confirmed on Friday that three foreign oil workers seized on Thursday in the Niger Delta had been freed.

The three men worked for Saipem, a subsidiary of the Italian ENI oil group, and were kidnapped at Buguma about 30km southwest of Port Harcourt, capital of the oil-rich Rivers region.

Attacks January by a group known as the Movement for the Emancipation of the Niger Delta (MEND) have left at least 24 members of the security forces dead. The attacks have also cut Nigeria's exports of 2.6 million bpd by around a quarter, helping to force up world prices.

Despite drop in prices, "the market is not expected to fall too far as tensions in the Middle East remain," Sucden analysts added.

Recent oil prices have been caused largely by global supply concerns linked to Iran, the world's fourth biggest producer of crude, whose nuclear ambitions have triggered a diplomatic crisis.

Traders that the Islamic republic may slash exports and send oil prices rocketing should action be taken against its disputed nuclear energy program.

Another supporting prices is a US government requirement this year for refineries to replace the additive MTBE, which is a recognized health risk, with ethanol in fuel.

Analysts the initiative, which refineries are trying to meet ahead of the northern hemisphere summer, may slow production this year.