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Mild Weather Sends Oil Down

Kristina Shevory

Crude oil futures slumped Tuesday as warm weather swept across much of the northern U.S. and traders decided that Iran won't follow through on its threat to trim crude exports in retaliation for U.N. Security Council sanctions.

February light, sweet crude lost $1.31 to settle at a two-week low of $61.10 a barrel on the New York Mercantile Exchange. A gasoline pipeline blast in Nigeria, the fifth-largest crude supplier to the U.S., also failed to support higher prices. The explosion killed more than 250 people, many of whom were collecting spilled fuel for use at home.

"Participants will remain watchful, but until Iran actually takes action to cut off oil to the West, buying may be somewhat restrained," wrote Michael Fitzpatrick, an energy analyst with Fimat USA, in a note to clients. "Iran's vitriolic president may also feel restraint coming off recent election returns that show considerable disenchantment with his administration."

On Saturday, after months of deliberations, the U.N. Security Council approved sanctions against Iran over its refusal to end its nuclear program. The sanctions, which restrict Tehran from importing and exporting nuclear equipment and fuel, could be beefed up if Iran chooses to flout them.

"If necessary, we will not hesitate to return to this body for further action if Iran fails to take steps to comply," Alejandro D. Wolff, the acting U.S. ambassador to the U.N., told The New York Times.

Tehran has said it will continue enriching uranium and held out the possibility of reducing crude exports to the West in response. But it may have problems actually cutting shipments because its economy depends heavily on the billions it receives in oil revenue.

"If necessary, Iran will use any weapon to defend itself," Iranian Oil Minister Kazem Vaziri-Hamaneh told Reuters Tuesday. Iran renewed its nuclear development program earlier this year in violation of a U.N. ban and has steadfastly maintained since then that it has a right to nuclear energy.

Tehran insists it needs a new way to generate electricity for its growing population, while the West believes the program is a cloak for building atomic weapons.

Trading on the Nymex, which was closed on Monday in observance of Christmas, was thin and is likely to remain that way for the remainder of the week. Traders typically don't make big bets at the end of the year.

Much of the energy complex took a cue from crude and declined. Wholesale unleaded gasoline and heating oil each gave back 5 cents to $1.57 a gallon to $1.62 a gallon, respectively.

Brimming fuel supplies and predictions of warm weather dampened natural gas prices by 52 cents, sending them to a three-month low of $6.11 per million British thermal units. The National Weather Service expects above-average temperatures to cover California and the northern part of the U.S. through Jan. 4. Domestic supplies are nearly 10% above the five-year average, according to the latest U.S. Energy Department update.

In stock market action, shares of drilling and refining companies were increasing by 0.3% on the Amex Oil Index. Anadarko Petroleum(APC Quote), Exxon Mobil(XOM Quote) and ConocoPhillips(COP Quote) were leading advances by about 1% each.

Anadarko is selling natural gas fields in Louisiana for $1.6 billion in cash to Exco Resources (XCO Quote), the company said. The deal, which is expected to close in March, will help Anadarko pay down some of the debt left over from its $22.5 billion purchases of Kerr-McGee and Western Gas Resources.

The fields, totaling 66,000 acres, together produce 190 million cubic feet per day. Anadarko shares were recently up 1.2% at $42.66. Exco's stock was climbing by 5.7% to $17.80.