Oil prices remain high on persistent supply misgivings


Sun, Apr 01, 2007 - Page 10

Oil prices settled lower Friday as investors took profits after Thursday's rally and ahead of the weekend. Prices remained near highs for the year, however, as supply fears persisted over the political standoff involving Iran's capture of 15 British marines and sailors.

Light, sweet crude futures for May delivery fell US$0.16 to settle at US$65.87 a barrel on the New York Mercantile Exchange. The contract closed at a six-month high on Thursday.

Brent crude for May delivery rose US$0.22 to settle at US$68.10 a barrel on London's ICE Futures exchange.

"Often when prices trend hard Monday through Thursday, we have short-term traders who are reluctant to carry their positions through the weekend," said Tim Evans, an energy analyst with Citigroup Global Markets.

Evans added that a weak expiration in April gasoline could have weighed on oil prices. April gasoline futures fell US$0.024 to settle at US$2.1115 a gallon (US$0.5578 per liter).

Crude prices are still high, Evans said, as traders have gained an "appreciation for how quickly political events can affect prices."

Iran, in a confidential letter posted Friday on an internal Web site of the UN nuclear monitor, said its fear of attack from the US and Israel prompted its decision to withhold information from the agency.

The crisis had deepened earlier Friday as British Prime Minister Tony Blair denounced Iranian TV footage of two of the captured navy personnel and warned Iran that it "will face continued isolation" if it persists in holding the captives.

Iran detained the British group last week while they were patrolling for smugglers near the mouth of the Shatt al-Arab waterway, and a top official said the captives may be put on trial. The incident comes several months into a standoff between Iran, the fourth-largest oil producer, and the UN over the country's nuclear program.

Iranian TV has shown two of the personnel -- a female sailor and a male marine -- apologizing for straying into Iranian waters. Britain maintains the group was clearly in Iraqi waters.

Worries related to Iran -- which is also located along a key waterway in the oil trade -- have led traders to put an extra premium on oil prices that are already high due to seven straight weeks of declines in US gasoline inventories.

Traders are not saying they believe war with Iran is likely, but in an environment of high demand and falling domestic supplies, they say a large-scale conflict could have a huge effect on the energy markets.

Iran is located along the Strait of Hormuz, through which tankers ship about 17 million barrels of crude oil a day, according to the US Energy Information Administration. That accounts for two-fifths of the world's crude oil traded by tanker, and about one-fifth of total oil production.

The exports exiting the narrow waterway are bound for the US, Western Europe and Japan.

Another major factor on oil prices this week was the continuation of a 17-day strike by workers at the French port of Marseilles, which could tighten markets and lead to a drop in gasoline exports to the US, Evans said.