Oil prices edged under $73 a barrel today as world powers studied Iran's offer of more talks to resolve a nuclear dispute that could lead to sanctions against the world's fourth-largest oil exporter.
Michael Coleman, managing director of Aisling Analytics
US crude for October delivery was 16 cents down at $72.94 a barrel by 0637 GMT, after falling 20 cents yesterday. The September contract expired yesterday, 18 cents up at $72.63 after a three-day rally. London Brent crude for October slipped 16 cents to $73.08 a barrel.
Iran said its reply to a package of incentives by world powers contained ideas that would allow serious talks about its standoff to start straight away. But it was not clear whether the response went far enough to avert United Nations sanctions.
"The risk to the market is to the downside, since the market has factored in Iran being intransigent," said Michael Coleman, managing director of Singapore-based hedge fund Aisling Analytics. "Fundamentally, crude should be under pressure."
The UN Security Council has demanded that Iran halt its nuclear work by a deadline of August 31, but there was no sign that Tehran had agreed to a key demand to halt uranium enrichment.
Traders fear that Tehran may use its oil exports of more than 2 million barrels per day (bpd) as a weapon to defend itself in the row. Officials have said sanctions will harm the West more than Iran by sending oil prices even higher.
US crude prices have fallen back from a record $78.40 in July after a ceasefire between Israel and Lebanon eased the risk of violence spreading in the Middle East, which pumps nearly a third of world oil.
But prices remain 19 per cent up this year on the fear of disruption to Iran's exports and reduced Nigerian supplies.
At least 508,000 bpd or about a sixth of Nigeria's output capacity has been shut in due to militant attacks and pipeline leaks this year, with its largest producer, Royal Dutch Shell, most affected. Exxon Mobil said today its Nigerian output had not been shut in.
A partial outage in BP's Prudhoe Bay oilfield, the largest in the United States, was expected to lead to a 1.2 million barrel crude drop last week in US inventory data due later today.
Gasoline stockpiles in the world's top consumer were expected to fall 1.9 million barrels while distillate fuels were forecast to see another seasonal build ahead of peak winter demand.
Traders are keeping an eye on Tropical Storm Debby in the far eastern Atlantic, the fourth of the 2006 hurricane season, though forecasters saw it moving towards Bermuda and not threatening the oil-producing US Gulf Coast.