Oil prices eased a little more on Thursday after a steep fall the day before on signs of reduced tension in the Middle East and weakness in US gasoline demand.
Benchmark Brent July light crude futures were down 14 cents at $26,42 a barrel by mid-afternoon in London, while US light, sweet crude futures were off 15 cents at $28 a barrel, putting the brakes on Wednesday’s $1,21 fall in New York.
On Wednesday, traders took profits and large, speculative investment fund liquidated positions from the past week’s $3 rally that pushed prices over $29 for the first time since Sept. 11, when the market soared following the attacks in the US.
Worries that Israeli-Palestinian violence could widen into a regional conflict — disrupting crucial Gulf oil export flows — has been a primary driver of the market in recent months, adding as much as a $6 premium to oil prices, analysts say.
But with the Israeli withdrawl from the West Bank and encouraging signals from the Palestinian camp, traders say much of the inflated value has been wiped away, partly replaced with fundamental strength on the recovering US economy.
On Wednesday, Palestinian leader Yasser Arafat called for ”change and reform” in his government, including new elections, potentially opening the door for a resumption in peace talks.
Israeli Prime Minister Ariel Sharon, whose Likud party has rejected the idea of a Palestinian state, said he expected such a state would emerge eventually.
”If progress is made towards peace talks then there will be little justification for any ‘Middle East premium’ in the oil price for months,” said Lawrence Eagles of GNI Research.
Iraq
Iraq on Thursday also removed one more anxiety for the market, accepting the latest six-month extention of the UN’s oil-for-food programme, although it blasted the major revisions made to the regime this week.
Some traders had feared that Iraq could once again cut off its nearly two million barrels per day (bpd) of exports — as it did in April to protest against the Israeli incursions — since the new sanctions had cracked down on the import of some goods that could be used for both military and civilian purposes.
”Iraq will cooperate with UN resolution 1409 adopted by the Security Council concerning extension of the memorandum of understanding for six months,” Information Minister Mohammed Saeed al-Sahaf said in a statement.
American officials said on Wednesday that Iraq might allow the return of the United Nations weapons inspectors after a hiatus of more than three years, partly diffusing fears of US military action against the regime.
US gasoline demand disappoints
Wednesday’s turnaround after a bullish spell was spurred by news of rising US gasoline stockpiles and declining demand, despite the imminent approach of the summer driving season.
US government data released on Wednesday showed that gasoline inventories, already five percent above last year, rose by another one percent last week while demand fell by four percent in April versus the same month last year.
US gasoline demand usually rises from late May to early September when Americans take to the road for their summer holidays. – Reuters