MARKET WATCHPositive reaction from Iran reduces energy prices

June 7, 2006
Energy prices retreated slightly June 6 as at least one Iranian official reacted positively to proposals by members of the United Nations Security Council aimed at getting Iran to postpone its uranium-enrichment program.

Sam Fletcher
Senior Writer

HOUSTON, June 7 -- Energy prices retreated slightly June 6 as at least one Iranian official reacted positively to proposals by members of the United Nations Security Council aimed at getting Iran to postpone its uranium-enrichment program.

Ali Larijani, Iran's nuclear negotiator, said the new proposals "contain positive steps and also some ambiguities." The proposals by the five permanent members of the security council—the US, the UK, France, China, and Russia—plus Germany, promise eventual US assistance for an Iranian civilian nuclear energy program if Iran will suspend that operation until the UN's International Atomic Energy Agency can determine the program is peaceful. Some observers said it could take years to make that determination. There also was an offer to guarantee for Iran's territorial integrity, which would eliminate the threat of invasion by the US or Israel.

Also proposed was European assistance in building light-water nuclear power plants that could not produce material for nuclear weapons. Other financial incentives included support for Iran's membership in the World Trade Organization and permission to purchase US and European aircraft to replace Iran's aging airline fleet.

Observers said it is the most generous offer so far to Iran. It also would bring the US in direct contact with the Iranian government for the first time in 26 years since the US Embassy in Tehran was seized by Islamic revolutionaries.

US inventories
The US Energy Information Administration said June 7 commercial US crude inventories increased by 1.1 million bbl to 346.6 million bbl during the week ended June 2. US gasoline stocks gained 1 million bbl to 210.3 million bbl in the same period but remained in the lower half of the average range for that time of year. Distillate fuel inventories rose by 1.8 million bbl to 120.7 million bbl, with a large increase in ultralow-sulfur diesel fuel more than compensating for a decline in regular diesel fuel as heating oil inched higher. June 1 marked the Environmental Protection Agency's deadline for production of ULSD with a maximum sulfur content of 15 ppm, down from 500 ppm previously.

Imports of crude into the US increased by 39,000 b/d to 10.9 million b/d in the week ended June 2. The input of crude into US refineries was up by 115,000 b/d to 15.6 million b/d, with refineries operating at 91% of capacity. However, US gasoline production declined slightly to 9.1 million b/d while distillate fuel production increased slightly to 4.1 million b/d.

Energy prices
The July contract for benchmark US light, sweet crudes dropped 10¢ to $72.50/bbl June 6 on the New York Mercantile Exchange. The August contract lost 23¢ to $73.11/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 10¢ to $72.50/bbl. Heating oil for July delivery slipped by a miniscule 0.01¢ to remain virtually unchanged at $2.04/gal on NYMEX. Gasoline for the same month, however, rose by 1.46¢ to $2.18/gal. The July natural gas contract lost 7.8¢ to $6.39/MMbtu

In London, the July IPE contract for North Sea Brent crude fell by 56¢ to $70.81/bbl. The June gas oil contract dropped $6.25 to $628.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes lost 40¢ to $66.08/bbl on June 6.

Contact Sam Fletcher at [email protected].