Crude Ends Slightly Lower

The February contract closes at $62.92 a barrel.
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Updated from 11:06 a.m. EST

Oil prices fell Friday as the $64-a-barrel level continued to provide stiff overhead resistance for bulls.

Crude for February delivery, which topped out at a three-month high of $65.05 intraday Thursday, closed down 2 cents to $63.92 a barrel (trading ended early Friday ahead of the long weekend). The February contract had closed Nymex floor trading at $63.94 in each of the previous two sessions.

Natural gas dipped 16 cents to $8.78 per million British thermal units, a five-month low. Gas is now at its lowest point since before Hurricane Katrina hit the Gulf Coast and shut down the region's petroleum production. Futures are down about 15% this year and 44% below their high of $15.78 after the hurricanes.

Unleaded gasoline and heating oil each picked up 1 cent to $1.73 a gallon and $1.72 a gallon.

Oil has hovered in the $63-$64 range for the first two weeks of 2006, first as new money was put to work by commodity funds and then as political tensions rose in the Middle East.

On Friday, Iran threatened to halt spot inspections of its nuclear facilities by U.N. officials if western countries make good on threats to bring the country before the Security Council. The U.S. and others have raised concerns about Iranian plans to restart nuclear research after a two-year hiatus.

President Bush and German Chancellor Angela Merkel, who is visiting the U.S., held a joint press conference Friday where they said the United Nations Security Council should handle the impasse with Iran.

The prospect of Iran arming itself with nuclear weapons is "unacceptable" and a "grave threat" to the world, President Bush said,

Bloomberg

reported.

The West is walking a delicate course with Iran because the country is a large oil producer, exporting 2.4 million barrels per day, and sanctions would cut worldwide supplies and drive up prices. Iran is likely hoping to push the West as far as it can, said Edward Meir, a commodity analyst with Man Financial.

Meanwhile,

Shell

(RDS-A)

said oil shipments from Nigeria would be delayed after an explosion ruptured a major pipeline and gunmen kidnapped four workers from an offshore platform, the

Associated Press

reported.

Inventories of U.S. crude remain more than 11% above their levels at this time last year, reflecting heavy imports in the wake of hurricanes Katrina and Rita.

"Bullish arguments continue to focus on fear of supply shortages. Physically, this just simply has not developed," said Kyle Cooper, vice president in futures and fixed income for Citigroup Global Markets in Houston.

Still, given the recent reliance on imports, threats to overseas supply lines have had an outsize impact on domestic prices.

Natural gas, though, is relatively immune to foreign supply threats because most of it is produced in North America. Still, prices have been dropping amid warm weather and are likely to remain low despite a brief shot of cold weather this weekend in the Northeast. Above-average temperatures are forecast for the Midwest and Northeast, the country's largest consumers of heating fuel, through mid-January, according to the National Weather Service.

Prices of natural gas are affected by other factors: drilling activity, high demand, crude prices -- electricity generators and other industrial consumers can switch back and forth between oil and gas depending on their prices -- and the recovery of production in the Gulf of Mexico. Platforms, refiners and pipelines have gradually been fixed since September, but about 18% of gas and 26% of daily output still remains offline.

Shares of energy stocks were rising Friday, with

Exxon Mobil

(XOM) - Get Report

recently inching up 1.2% to $60.38;

BP

(BP) - Get Report

rising 2.3% to $69.52;

Shell

(RDS-A)

rose 0.7% to $65.06.

The first U.S. initial public offering of 2006,

Linn Energy

(LINE)

, priced 11.75 million limited-partnership units Thursday night at $21 apiece. The Pittsburg-based natural gas company raised $247 million in the deal. The units were recently up $2, or 9.5%, to $23.

Linn's IPO comes amidst a flurry of energy-related IPOs in the past year, prompted by high crude prices and robust earnings.