Updated from 1:35 p.m. EST
Oil prices took a circuitous route to nowhere Thursday, briefly rising above $65 on concerns about Iran's nuclear intentions before swooning in the session's final minutes to close unchanged. Natural gas fell after the government reported a muted rise in inventories.
Crude for February delivery closed Nymex floor trading at $63.94 a barrel, unchanged from a day earlier. The contract, which gained 57 cents Wednesday, topped out at $65.05, a three-month high, as concern grew about political developments in Iran and other oil-rich regions.
Unleaded gasoline and heating oil each lost less than 1 cent to $1.72 a gallon on both contracts.
After a two-year hiatus, Iran is pushing ahead with plans to resume nuclear research, despite a storm of condemnation from Europe and the U.S. On Thursday, Iran broke two additional seals on its nuclear research facilities, prompting Germany, France and the U.K. to seek an emergency meeting with the International Atomic Energy Agency. After two years of voluntary suspension, Iran removed seals on two other facilities that were placed by the IAEA, which oversees nuclear activities worldwide for the United Nations.
The U.S. has raised the possibility of seeking U.N. sanctions, which could prohibit countries from purchasing Iranian oil. In the past, political threats to worldwide supplies have led refiners to stockpile crude. In the early 1980s, crude oil inventories climbed nearly 100 million barrels during the Iranian revolution and the start of the Iran-Iraq war, said Bill O'Grady, director of futures research at A.G. Edwards in St. Louis.
"I don't expect a conflict with Iran to be long or involved," said O'Grady. "And so, any inventory accumulation that boosts prices in the short-run could lay the groundwork for weaker prices down the road. I doubt the increase in stock levels is permanent."
Two other geopolitical developments -- the Ukrainian Parliament's threat to dissolve the country's government and Israel Prime Minister Ariel Sharon's stroke -- have also raised jitters in energy markets. The situation in Ukraine, where lawmakers voted to sack President Viktor Yukashenko's government over a natural gas deal with Russia, is of particular concern for its potential to change supply and demand dynamics in Europe.
"The dramatic political events of 2006 already show how the oil-consuming countries are vulnerable to the political whims of the oil producing countries," said Phil Flynn, vice president and energy analyst at Alaron Trading in Chicago. "The world oil supply-and-demand balance has never been so delicate.
"And that realization is making these types of events the defining issue as we look at the energy markets in 2006," Flynn said.
Natural gas futures closed down 29 cents to $8.94 per million British thermal units after the Energy Department said gas inventories in commercial storage fell by 20 billion cubic feet last week. Analysts had been expecting a fall of between 15 billion and 37 billion cubic feet. Inventories are currently 11.8% above the five-year average.
Front-month natural gas is down about 15% this year and 40% below the record high of $15.78 it reached last month amid unusually warm weather.
Over the past decade, natural gas prices have more than quadrupled due to high demand and low production levels. High prices have driven factories and utilities to curb their usage of natural gas by 18% from 1999 to 2004, according to figures from the Energy Department.
Meanwhile, the Commerce Department said the U.S. trade deficit narrowed to $64.2 billion in November, as the dollar value of oil imports fell even as the overall volume rose.
In recent trading,
rose 0.3% to $68.10;
lost 0.8% to $64.58;
dipped 0.1% to $133.24, and
declined 0.1% to $60.19.
The Nymex will close at 1 p.m. instead of 2:30 p.m. on Friday and will be shut on Monday in observance of the Martin Luther King holiday.