MARKET WATCHAl-Zarqawi's death reduces energy prices

Energy prices declined June 8 for the third consecutive day on reports Al-Qaeda leader Abu Musab al-Zarqawi died in a bombing attack by US aircraft in Iraq.

June 9, 2006

2 min read

Sam Fletcher
Senior Writer

HOUSTON, June 9 -- Energy prices declined June 8 for the third consecutive day, with the near-month crude futures contract still hovering above $70/bbl in New York, on reports Al-Qaeda leader Abu Musab al-Zarqawi died in a bombing attack by US aircraft in Iraq.

Formation of a full government in Iraq and the death of Al-Zarqawi, a key figure in terrorist activity, helped reassure energy markets.

Traders also are hopeful incentives offered by the five permanent members of the United Nations Security Council (China, France, Russia, UK, and US) along with Germany, will defuse the confrontation with Iran over its uranium enrichment program. Those incentives involve the first direct negotiations between the US and Iran since 1979. It also offers Iran an opportunity to reintegrate into global commerce.

In return, Iran would be required to suspend uranium enrichment and agree to ultrastrict inspections. "Seasoned diplomats are skeptical that this deal will be agreed, and relatively toothless sanctions suggest a military confrontation could still occur," said Adam Sieminski, of Deutsche Bank AG, New York. "The $10/bbl premium in oil that reflects potential for a serious disruption in supplies may not go away anytime soon."

Energy prices
The July contract for benchmark US light, sweet crudes lost 47¢ to $70.35/bbl June 8 on the New York Mercantile Exchange. The August contract declined 37¢ to $71.13/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 47¢ to $70.35/bbl. Heating oil for July delivery dipped by 0.98¢ to $1.99/gal on NYMEX. Gasoline for the same month fell by 2.18¢ to $2.10/gal.

However, natural gas increased by 21.7¢ to $6.19/MMbtu on NYMEX. The Natural Gas Supply Association is forecasting a warmer-than-normal summer but without the record high temperatures recorded last year. A milder summer this year would help stabilize summer gas prices and curb volatility, NGSA said.

In London, the July IPE contract for North Sea Brent crude slipped by 14¢ to $69.50/bbl. Gas oil for June dropped $11 to 614/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes lost $1.59 to $63.84/bbl on June 8.

Contact Sam Fletcher at [email protected].