Oil drops sharply as Mideast fears subside



NEW YORK – Oil prices dropped sharply Monday, erasing many of the previous week’s record gains in a single session as concerns about conflict in the Middle East appeared to ease.

Light, sweet crude for August delivery fell $3.83, or about 2.6 percent, to $141.46 on the New York Mercantile Exchange. Earlier, the contract sank as low as $139.50, or $5.79 below Thursday’s settlement price.

After the last few weeks’ run-up, however, analysts were skeptical that the drop signaled the start of a long-term decline. Prices set records in each of the last six sessions.

“We’re just moving into a new and higher trading range” of about $140 to $146 a barrel, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. “We’ll probably consolidate there for a week or two … then probably push back into new record territory.”

In the U.S., record retail fuel prices edged even higher as Americans made their way home at the end of the long Independence Day weekend, typically one of the busiest driving periods of the year.

A gallon of regular gasoline now costs $4.108, a tenth of a penny more than than the previous day’s high, according to AAA, the Oil Price Information Service and Wright Express. Diesel is also at a record, of $4.801, up nearly a penny.

Americans are now paying more than $1 billion more for gasoline per day than they did five years ago, according to an OPIS report Monday. In June, the world’s largest oil consumer spent about $47.38 billion on the motor fuel _ nearly three times as much as in 2003.

Fred Rozell, retail pricing director at OPIS, said retail gas costs will likely continue to rise. He predicted oil prices will continue to climb, and that could push prices at the pump up by as much as 25 to 30 cents per gallon more before the end of summer.

“It doesn’t look like there’s anything that’s going to drive (oil) prices down at this point, even reduced demand,” Rozell said. “There’s so much momentum with money going into commodities right now, it’s going to continue to go up.”

Fears that a fresh conflict in the Middle East could cut oil supplies eased over the weekend.

Iranian state media reported Friday that EU foreign policy chief Javier Solana and Iran’s top nuclear negotiator have agreed to the latest in a series of talks during the second half of July over Iran’s nuclear program and the enrichment of uranium.

“The Iranian situation turned confrontational last week which raised valid concerns in the oil market (over a possible attack). Now that seems less likely and this is a positive development,” said John Vautrain, an analyst with Purvin & Gertz in Singapore.

The contract hit a trading record of $145.85 on Thursday in New York before settling at a record close of $145.29 a barrel. There was no floor trade Friday in the U.S. because of the July Fourth holiday.

OPEC President Chakib Khelil said surging oil prices aren’t likely to fall amid strong demand, especially from China and India.

Khelil also told an energy conference in Algiers on Sunday the steady increases of late were unrelated to supply and demand, blaming the weak U.S. dollar, oil’s primary currency of exchange. Khelil said he believes the reason the dollar has fallen against other currencies is the string of interest rate reductions over the past year to boost the American economy.

A falling dollar has helped boost oil prices around 50 percent this year as investors often buy commodities such as oil as a hedge against inflation when the greenback weakens. Also, a struggling dollar makes oil less expensive to investors overseas.

The dollar fell marginally against the euro Monday.

In other Nymex trade, heating oil futures fell by 10.9 cents to $3.997 gallon while gasoline futures dropped 6.92 cents to $3.5018 a gallon. Natural gas futures lost 53.6 cents to fetch $13.041 per 1,000 cubic feet.

In London, August Brent crude fell $1.62 to $142.80 a barrel on the ICE Futures exchange.


Associated Press Writers George Jahn in Vienna, Austria, and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.