Oil prices sank to a seven-week low yesterday, before showing signs of bottoming out after Israel sounded new warnings over possible military action against Iran. "We are all united over the understanding that Iran must not be allowed to acquire a nuclear weapon, and that there is no doubt that diplomacy must be given priority," Maj Gen Gabi Ashkenazi, Israel's army chief of staff, said on Israeli public radio. "But we all realise, both the Americans and us, that all options must be prepared." Maj Gen Ashkenazi, who is on his first visit to Washington since taking office last year, said he told Pentagon officials that force may be needed to stop nuclear research by Iran, Opec's second-biggest oil producer. Crude prices started to rally following his remarks.
Earlier yesterday, New York futures contracts for September oil deliveries fell to US$124.89 a barrel, brushing off threats from a Nigerian militant group to sabotage oil facilities in the west African oil exporting country and extending the commodity's most recent three-day losing streak. Oil prices have since recovered to about $125 a barrel. Another factor helping the rebound may have been new US government data showing a 0.5 per cent dip in American crude stocks last week, to 295.3 million barrels. But the inventory decline followed a nine per cent drop in US oil imports to 9.81 million barrels a day from an 11-month high the previous week. Thomas Stenvoll, an analyst with the investment firm UBS predicted US crude inventories would increase "very quickly" once additional Saudi Arabian supplies started arriving. "A key premise in this week's sell-off seems to have been that those imports are knocking at the gates," he said yesterday in a report. "This week's price action is just round one." Crude has plunged about 15 per cent from its July 11 peak of $147.27 a barrel amid signs that oil demand is weakening in the developed world. Recent strengthening of the US dollar, which today traded at a two-week high against the euro, has also limited crude's appeal as a currency hedge. Yesterday, the US government released data showing that US fuel demand averaged 19.9 million barrels per day last week, the lowest level since January of last year. Fuel demand has declined for three straight weeks in the US. It is now 2.1 per cent lower than a year ago, the government said.
A US Energy Department report showed that American petrol inventories rose by 2.85 million barrels last week, while stockpiles of distillate fuel, including heating oil and diesel, increased by 2.42 million barrels. Separately, Japan's government disclosed a 0.7 per cent drop in its June oil imports from a year earlier, the first decline in nine months. The price of Abu Dhabi's Murban crude fell yesterday as Japanese refiners limited purchases because of low profit margins on processing the oil. Some analysts predicted that traders would be cautious about returning to the market after oil's big drop. Others said profit-taking was logical. On Wednesday, the Iranian president, Mahmoud Ahmadinejad, said Tehran would continue to resist pressure to halt enrichment. "They said Iran has surrendered. They are mistaken," he said. "If the great powers think they can sit down and discuss Iran's rights and pressurise Iranians, such a thing will not happen in 100 years." @email:firstname.lastname@example.org