Al-Zarqawi’s death brings oil price dip

Published Thursday, June 8, 2006

VIENNA, Austria (AP) - Oil prices dipped below $70 a barrel for the first time in two weeks this morning following the announcement of the death of al-Qaida’s leader in Iraq, Abu Musab al-Zarqawi.

Word by Nigerian militants that they would release foreign hostages and an easing of world tensions over Iran also calmed markets, which were already on a downward course after U.S. data yesterday showed ample crude and gasoline supplies.

"The hope is that with the removal of the terror leader in Iraq, the Iraqi situation will stabilize faster and future oil supply could increase," said Victor Shum, energy analyst with Purvin & Gertz in Singapore.

Light sweet crude for July delivery fell more than a dollar on the announcement in Baghdad that al-Zarqawi had been killed in an air raid. By midday in Europe, it was down 98 cents at $69.84 a barrel in electronic trading on the New York Mercantile Exchange.

July Brent crude futures on London’s ICE Futures exchange fell 96 cents to $68.23 a barrel.

Thursday’s slide in oil prices continued a two-day trend as the market adjusted to U.S. government data showing higher crude oil and gas inventories and some easing of tensions over Iran’s nuclear program.

Iran has said it would study a package of incentives by world powers hoping to curb its nuclear program.

For Nigeria, Vienna’s PVM Oil Associates noted that "following months of attacks and kidnappings some 611,000 barrels a day of Nigerian crude remains shut in." Still, tension there also ebbed today, with militants in the oil-rich delta region saying they would release five kidnapped South Korean oil workers.

Despite the geopolitical jitters, the oil market remains well supplied.

In its weekly report yesterday, the Department of Energy said U.S. crude-oil stocks grew last week by 1.1 million barrels to 346.6 million barrels, or 4 percent above year-ago levels. Gasoline inventories grew by 1 million barrels to 210.3 million barrels, or 2.5 percent below year-ago levels. The commercial supply of distillates, which include heating oil and diesel, increased by 1.8 million barrels to 120.7 million barrels, or 8.5 percent more than a year ago.

On a week-to-week basis, the agency’s report showed a slight decline in refinery output and gasoline demand. Over the past four weeks, gasoline demand was 0.7 percent higher than it was during the same period a year ago.

Gasoline and heating oil futures were both down by more than 2 cents, at $2.0945 and $1.9685 a gallon, respectively.