Updated from 1:27 p.m. EDT
Oil futures tumbled Monday after Iran's president hinted he would like to resolve the impasse over his country's nuclear activities.
In a letter sent to President Bush, the Iranian president proposed "new solutions" to the standoff, an Iranian spokesman said.
"In this letter, he has given an analysis ... of new ways of getting out of the current delicate situation in the world," said Gholam Hossein Elham, Iran's government spokesman, at a news conference in Tehran,
It was the first letter an Iranian leader has sent a U.S. president since the Iranian revolution in 1979.
After a two-year hiatus, Iran restarted uranium enrichment in February in defiance of western threats of economic sanctions and rumors of military strikes. Iran has been referred to the U.N. Security Council, some of whose members are meeting today to discuss its strategy with the world's fourth-largest crude producer.
Sagging prices were also supported by comments from the head of the International Energy Agency, which advises nearly 30 countries on energy policy from its Paris office.
"The current prices aren't sustainable," said Claude Mandil, IEA executive director, the
reported. "Even producers aren't happy with high prices."
Front-month crude, which has risen 11% this year in part because of Iran, dipped 42 cents to settle at $69.77 a barrel. Unleaded gasoline was off 4 cents at $2 a gallon.
Oil futures fell by more than $4 last Wednesday and Thursday after an Energy Department report showed higher-than-expected gasoline supplies. Wholesale gasoline plunged 17 cents over the same span.
The drop in oil brought down prices for heating oil, which declined less than 1 cent to $1.95 a gallon, and natural gas lost 8 cents to $6.70 per million British thermal units.
Traders expect the drop to be temporary, though, because supplies remain tight and demand is still high.
"The global economy and subsequent demand should also remain strong and the idea that the market has made a major top is a difficult argument to mount," said Michael Fitzpatrick, an energy analyst with Fimat USA in New York.
Energy prices have been supported this year by supply disruptions in Nigeria, Africa's largest crude exporter, and an escalating standoff with Iran over its nuclear program. In Nigeria, rebels have cut oil production by 25%, or 500,000 barrels, and have threatened to expand their campaign of violence. Traders have fretted that any moves against Iran would quickly shave the world's crude inventories and further drive up prices.
Over the past two years, oil prices have more than doubled as the U.S. economy recovered and demand heated up in China and India. Supplies have dropped, and there is now less than 2 million barrels of extra crude, much of it from Saudi Arabia. Low capacity and few refineries will keep oil prices high for the next five years, the IEA's Mandil said Monday.
"At least until 2010, the probability is that there will not be an increase in spare capacity; spare capacity will remain extremely limited," Mandil said at an Australian oil conference,
reported. "That is for upstream. Downstream, it's the same problem. That means that probably we will have to live for the next four to five years with very tight capacities, tight markets and strong prices."
At the same time, soaring oil prices have boosted the bottom line of energy companies. Most of the biggest oil companies have seen higher first-quarter earnings this year, with profits soaring 3% at
Royal Dutch Shell
, 15% at
and 7% at
saw profits jump 49%, and
reported a 13% increase.
Rising energy prices have boosted profit margins at refiners this quarter. Profits at
more than tripled to $46.8 million, or $1.56 per share even though production fell 3%. Revenue rose 27% to $791.6 million in part to the sale of a petroleum refinery for $8.4 million.
During the first quarter, profit margins were $11.96 per barrel compared to $7.51 a barrel during the first quarter of 2005. Refiners make money when they can sell refined products, like gasoline, for more than barrel of crude.
saw earnings surge 67% to $57.6 million, or $1.02 a share. Revenue jumped from $692 million to $1.01 billion in the first quarter of 2006. Frontier's earnings were also boosted by its ability to refine heavy, sour crude, which, though it is high in sulfur and more expensive to process, is cheaper and more plentiful than the benchmark light, sweet crude.