Updated from 2:04 p.m. EDT
Oil futures fell Tuesday after an Iranian official said an incentives package designed to end his country's nuclear program had "positive steps" and "some ambiguities."
Iran's top nuclear negotiator, Ali Larijani, also suggested another round of talks could be held after Iran studies the package in detail. There is no set deadline for Tehran to respond to the package, though U.S. Secretary of State Condoleezza Rice said she needed a response within weeks.
Light, sweet crude lost 10 cents to settle at $72.50 a barrel. Energy shares continued to lose ground, with oil drillers and service companies down 1%. On Monday, energy stocks fell about 3% on concerns the
would continue increasing interest rates.
On Tuesday, the European Union's foreign policy leader, Javier Solana, presented a proposal to Iranian officials that is said to include the waiving of trade sanctions and the purchase of aircraft parts from
to improve Iran's civilian airplanes, the
New York Times
reported. Iran has not been able to buy spare parts for its planes since the U.S. slapped sanctions on Iran during the revolution in 1979.
The positive comments from Iran come on the heels of Iranian threats to cut global oil supplies if the U.S. threatened its nuclear program. Iran controls the Strait of Hormuz, a waterway through which about 20% of the world's crude passes every day. Thanks to those comments, crude prices set a fresh three-week high of $72.60 on Monday.
The sharp reversal in oil prices shows how much they are now based more on fear than fundamentals.
"Oil prices today are related to geopolitics and have no relation to supply," Qatar Oil Minister Abdullah bin Hamad al-Attiyah told
This year, oil prices have surged 20% as the standoff with Iran over its nuclear activities has heated up. Iran, the world's fourth-largest crude producer, restarted uranium enrichment in February in defiance of the U.N. The West has since reacted sharply with threats of economic sanctions and military strikes.
Output cuts in Nigeria, where rebels have attacked the country's oil industry to gain a share of its revenue; losses in Iraq because of insurgent attacks; and curtailed production in the Gulf of Mexico have also propped up prices. A week after this year's hurricane season began, 22% of the gulf's oil production has not returned.
This year, domestic crude production is projected to increase by 157,000 barrels per day, or 3.1%, to 5.3 million barrels as offshore platforms in the Gulf of Mexico come back online and new oil is found. Output is forecast to grow 6.6% in 2007 for a total of 5.6 million barrels per day, according to the U.S. Energy Department's short-term energy outlook released Tuesday.
Gasoline added 1 cent to finish trading at $2.17 a gallon, while heating oil dipped less than 1 cent to $2.04 a gallon. Natural gas was off 8 cents at $6.38 per million British thermal units. A supply glut has dampened prices and natural gas prices are expected to average $7.74 per million British thermal units this year, down $1.12 from the 2005 average.
Earlier in the session, gasoline prices lost ground after repairs to
Corpus Christi refinery were completed. Meanwhile, analysts expect the Energy Department's weekly inventory update due Wednesday to show that domestic inventories of gasoline rose. Last week, gasoline production at the Texas refinery was down by 50,000 barrels per day thanks to electrical problems, but was returned to full capacity over the weekend.
poll of analysts, estimates were for an increase of 1.5 million barrels of gasoline and 1.6 million barrels of distillates as refiners increased production. Refinery capacity likely inched up 0.25% from 91.4% last week. Crude, which is processed into petroleum products like gasoline, probably fell by 600,000 barrels from 345.5 million barrels last week.
This year, refiners' maintenance schedules were longer than usual because they had to switch to ethanol and summer blends of gasoline at the same time. The delay translated into lower supplies of gasoline, which are nearly 3% below last year, and higher prices. The Energy Department expects regular gasoline prices to average $2.76 per gallon this summer, up 39 cents from last year.
Higher prices and lost production in the Gulf of Mexico resulted in lower demand for all petroleum products in 2005. Consumption dropped 77,000 barrels per day, or 0.4%, last year, but is expected to inch up 0.9% in 2006.
Meanwhile, shares of oil producers were trading lower, with
were leading the declines on the Amex Oil Index.