MARKET WATCHCrude prices fall on news of proposal to Iran
Sam Fletcher
Senior Writer
HOUSTON, June 2 -- Crude prices continued to fall June 1 as representatives of the US, China, Russia, the UK, Germany, and France agreed during a meeting in Vienna on a package of "far-reaching proposals" to persuade Iran to give up uranium enrichment for its nuclear power program.
Details of those proposals were not revealed. Officials said Iran has an unspecified number of weeks to respond to that offer. Otherwise, the group also agreed to take unspecified action against Iran through the United Nations. There was no immediate reaction from Iranian officials.
Earlier this week, the US offered to participate in negotiations with Iran. The two countries haven't had formal diplomatic contact in the 26 years since the US Embassy in Tehran was seized by Islamic revolutionaries.
The US offer prompted "speculation that the situation is now closer to a benign resolution," said Paul Horsnell, Barclays Capital Inc., London. "However, we see the offer as being more of an indication of the narrowing of options and the acceleration of pace in the issue than as a precursor to the breaking of the ice. In order to maintain the existing coalition and to achieve some element of support from China and Russia, the offer was one that was perhaps almost forced. However, unless Iran backs down on enrichment fairly swiftly—and at the moment we consider that unlikely—then this could be seen as another box checked on the list that points towards a military solution."
At a separate meeting June 1 in Caracas, ministers of the Organization of Petroleum Exporting Countries agreed to maintain the existing production limit of 28 million b/d for the 10 member countries other than Iraq.
Energy prices
The July contract for benchmark US light, sweet crudes dropped 95¢ to $70.34/bbl June 1 on the New York Mercantile Exchange. The August contract fell by $1.06 to $71.23/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 95¢ to $70.34/bbl. Heating oil for July delivery lost 2.46¢ to $1.97/gal. However, gasoline for the same month gained 3.15¢ to $2.13/gal.
The July natural gas contract rose by 6.4¢ to a 3-week high of $6.45/MMbtu after the Energy Information Administration reported a lower-than-expected increase in US underground gas storage during the week ended May 26. "Nevertheless, the market still has to deal with an oversupply of inventories, which could bring prices down below $6[/MMbtu] again," said analysts at Enerfax Daily.
In London, the July IPE contract for North Sea Brent crude dropped $1.02 to $69.39/bbl. The June gas oil contract increased by $8.25 to $627.50/tonne.
The average price for OPEC's basket of 11 benchmark crudes dipped by 4¢ to $64.84/bbl on June 1.
Contact Sam Fletcher at [email protected].