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THE WALL STREET JOURNAL: Oil Prices Sink As Traders Refocus On Supply Reports

Global Supply Concerns
Had Sent Crude Higher
By MYRA P. SAEFONG
MarketWatch
February 22, 2006 3:04 p.m.

Crude-oil futures fell Wednesday as focus shifted away from some of the world's trouble spots and toward weekly U.S. inventories data, which are expected to show the nation well supplied with oil and petroleum products.
On the New York Mercantile Exchange, crude oil for April delivery fell $1.73 to $61.01 a barrel, marking its first full day as the front-month contract. On Tuesday, the March and April contracts closed up 2%, driven higher by supply concerns relating to Nigeria, Iran and Ecuador.
The Energy Department will release reports on supplies of oil and its products and on natural gas separately Thursday, which are expected to show builds for the week. The oil data are being released a day later than usual because of the Presidents Day holiday earlier this week.
Traders “seem to have shrugged off potential threats to supply … and to have refocused on swelling supplies,” said Michael Fitzpatrick, an analyst at Fimat USA. “The governor of Nigeria doesn't think that militants are set to attack again soon — and that has apparently prompted a little profit taking in front of tomorrow's reports,” he said, but “certainly seeing a 2.4 million barrel-per-day producer threatened is not something that can be fully discounted.”
Royal Dutch Shell halted 455,000 barrels a day of production over the weekend after nine of its workers were kidnapped. The company also extended force majeure, whereby it is legally protected from not meeting contractual obligations on Nigerian crude-oil exports.
The governor of the oil delta state said Tuesday that he has been in contact with the kidnapped workers and urged Shell to resume suspended operations, according to Man Financial's Edward Meir.
Meanwhile, “the Palestinian situation is probably about to roil Middle East tensions, as the withholding of tax revenues from the Palestinian authority could result in a breakdown of control and a flaring of hostilities,” said Mr. Fitzpatrick. Also, “Iran overnight offered to finance Hamas, and that is sure to whip up anxiety, as well,” he added in a note to clients.
Elsewhere, Ecuador has stopped pumping oil after protesters invaded a station late Tuesday. The state oil company halted exports of 144,000 barrels a day because of the protests, whose organizers are demanding that more resources be provided to the poverty-stricken area.
And after failing to reach an agreement with Russian negotiators at the weekend, Iran is due to restart talks on Thursday ahead of a pivotal meeting of the U.N. “If the talks fail, Iran will most likely face a response from the Security Council, although what exactly is in store for them at this stage is no doubt the subject of intense back-room negotiations,” said Mr. Meir. “The murky geopolitical backdrop … should keep markets nervous.”
Indeed, with the “geopolitical pot somewhat higher than a low boil, a quick retest of the February lows seems out of the question,” said Mr. Fitzpatrick. “While stockpiles could continue to swell, and temperatures will eventually break higher, there doesn't appear to be and easy or quick solution to a cornucopia of woes that could potentially threaten supply.”
Write to Myra P. Saefong at [email protected]

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