Crude oil prices plunged more than 1 dollar a barrel today as tensions eased in the stand-off between Britain and Iran over captive British military personnel.
Prices had risen steadily since 15 British sailors and marines were detained March 23 by Iran for allegedly entering Iranian waters.
Yesterday, crude fell below 66 dollars a barrel after Iran’s chief international negotiator called for an end to “the language of force” in the dispute.
Light, sweet crude for May delivery dropped 1.79 dollars to 64.15 a barrel in late morning trading on the New York Mercantile Exchange. Two weeks ago, the contract was trading under 60 dollars a barrel.
On London’s ICE Futures exchange, Brent crude for May sank 1.57 dollars to 67.17 a barrel.
“The market seemed to believe statements by Iran’s secretary of the Supreme National Security Council, Ali Larijani, could ease tensions between the Islamic Republic and the UK,” said Vienna’s PVM oil Associates.
Still, oil analyst Victor Shum of Purvin & Gerz in Singapore warned of potential market volatility.
“There’s no clear indication one way or the other how it’s going to be resolved,” Shum said.
“There could be price swings in either direction depending on how this situation develops.”
The fear that Iran could disrupt the oil trade is causing traders to add a risk premium, especially as they see less of a cushion after the Organisation of Petroleum Exporting Countries’ production cuts.
Iran is located along the Strait of Hormuz, through which tankers ship about 17 million barrels of crude oil a day, according to the US Energy Information Administration.
That accounts for two-fifths of the world’s crude oil traded by tanker, and about one-fifth of total oil production.
Phil Flynn, an energy analyst at Alaron Trading Corp. in Chicago, also pointed out that crude prices remain higher than before the Iran situation and that other supportive factors continue to buoy prices.
“Coming down a buck fifty isn’t that bad given the run-up of 6 to 7 dollars in the last week or so,” Flynn said.
“This just shows that the rally in oil isn’t just about Iran. It’s about the situation in Nigeria, demand at record high and recent refinery problems.”
Two foreign workers – said to be Lebanese – were kidnapped yesterday in Nigeria’s southern oil-producing region. This followed the weekend abduction of a British oil worker.
Nearly 70 foreigners have been taken since the beginning of the year in Nigeria’s oil-rich but impoverished Niger River delta region. Most are released unharmed after a cash payment. A Dutch construction worker and two Chinese also remain in captivity.