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The Wall Street Journal: Crude Falls as Terror Alert Ripples to Travel Demand

EXTRACT: Adding to the drag on oil prices, Royal Dutch Shell PLC said a Nigerian pipeline where a leak had caused it to declare force majeure on 180,000 barrels a day of output was back in use.

THE ARTICLE

By MATT CHAMBERS
August 11, 2006; Page C3

Crude-oil futures slid 3.1% as traders bet that foiled terror attacks planned on planes between the United Kingdom and the U.S. will damp tourism and cut jet-fuel demand.

Clocking up the biggest decline for the front-month contract in nearly three months, prices were further weighed down by an 8.4% plunge in gasoline futures and the restarting of oil flow at a Nigerian pipeline that can carry 180,000 barrels a day of oil. Traders and analysts said the fall in crude prices was exaggerated by speculators cashing in gains made on rising prices last week and Monday.
 
The front-month September light, sweet crude contract on the New York Mercantile Exchange fell $2.35 to $74 a barrel. Brent crude on London’s ICE futures exchange fell $2 to $75.28 a barrel.

Gasoline for September delivery fell 18.33 cents to $1.9889 a gallon, and September heating oil fell 8.13 cents to $2.025 a gallon.

“The terror plans moved prices down, but there are also signs this market has lost its momentum and doesn’t have the ability to move higher,” said Peter Beutel, president of Cameron Hanover in New Canaan, Conn. “There needs to be something really dramatic, such as a hurricane or Iran cutting oil exports, if oil is to move higher.”

Crude’s sharp loss comes after the futures contract rose Monday to its all-time second-highest close after BP PLC said it would temporarily shut the U.S.’s biggest oil field as it investigated pipeline corrosion.

Yesterday’s slide in oil prices came after the U.K. said it arrested 21 British residents in connection with an alleged plan to simultaneously blow up several aircraft heading to the U.S. Speculation that tourists would be less inclined to travel by air, as happened after the Sept. 11, 2001 terrorist attacks, was behind the drop.

Adding to the drag on oil prices, Royal Dutch Shell PLC said a Nigerian pipeline where a leak had caused it to declare force majeure on 180,000 barrels a day of output was back in use.

Gasoline prices fell on a combination of speculative selling, seasonal anticipation of a drop in demand and the National Hurricane Center’s lowering on Wednesday of the number of hurricanes predicted for the Atlantic this season, said Walter Zimmermann, technical strategist with brokerage firm United Energy in Jersey City, N.J.

The fall also came after Goldman Sachs late Wednesday said it wouldn’t roll the remaining unleaded gasoline positions in its Goldman Sachs Commodity Index into a less-popular blend stock futures contract.

“The stake in the heart for gasoline was when the National Hurricane Center said the season is not going to be as bad as they thought it would be,” said Mr. Zimmermann. Hurricanes in the Gulf of Mexico generally support prices of oil and gasoline because of the refineries and oil production in the region.

In other commodities markets:

NATURAL GAS: Futures for natural gas fell after a U.S. government report showed a withdrawal of gas from storage last week that was larger than expected. September natural-gas futures on Nymex settled 12.2 cents lower at $7.529 per million British thermal units, losing some gains made the previous day.

GOLD: Futures on Nymex’s Comex division saw a steep selloff despite the threat of terrorism in the United Kingdom. Gold fell as the dollar firmed. The most-active, December contract slid $16 to $646 an ounce; the nearby August contract dropped $15.60 to $634.90.

Write to Matt Chambers at [email protected]

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