New York – Oil prices dropped below $66 a barrel Monday after Iran said it would consider halting its enrichment of uranium and OPEC ministers said they would maintain their 28 million-barrel-a-day production target.
These developments supported the view that supplies will outpace demand – a market sentiment that has pushed crude-oil prices down about 16 percent from their record high reached in mid-July.
“When supply exceeds demand, commodities have one way to go, and that’s down,” said Oppenheimer & Co. analyst Fadel Gheit. “Barring a global crisis, or a major supply disruption, I think the trend will continue.”
Still, the magnitude of Monday’s price decline shrank as traders digested the statement by OPEC that it would monitor market conditions and consider an output cut later this year.
Light, sweet crude for October delivery fell 64 cents to settle at $65.61 a barrel Monday on the New York Mercantile Exchange – the lowest closing price for front-month crude since it finished at $64.16 a barrel March 27. It dropped as low as $64.85 earlier Monday.
Iran said Sunday it is ready to consider complying, at least temporarily, with a U.N. Security Council demand that it freeze uranium enrichment. Expanding on terms of such a possible Iranian compromise, a diplomat familiar with the issue said Tehran was seeking assurances it would not be attacked by the United States during any negotiations with six world powers on enrichment and other nuclear issues.
“It was definitely a surprise that Iran would actually consider pausing enriching uranium,” said Alaron Trading Corp. analyst Phil Flynn. “We knew the Iran situation wasn’t going to lead to any oil-supply cuts in the short term, but now there’s hope a showdown will be avoided completely.”
The easing of tension between the United Nations and Iran also deflated precious-metals prices. December gold fell $20 a troy ounce to settle at $597.30 Monday on the New York Mercantile Exchange.
With the Iran threat erased for now, it appears oil supplies will remain ample. The Organization of the Petroleum Exporting Countries maintains about 2 million barrels a day of spare capacity, and stocks are high elsewhere.
Global demand figures continue to be strong, Flynn said, but traders are betting that demand will taper off now that the U.S. driving season has ended.
