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The Honolulu Advertiser
Posted on: Tuesday, July 8, 2008

Oil prices ease, but it's not expected to become a trend

By Adam Schreck
Associated Press

Hawaii news photo - The Honolulu Advertiser

The cost of filling an oil tanker, such as this one moored off Philadelphia, eased a bit over the weekend. But oil industry analysts were skeptical that the drop signaled the start of a long-term decline.

ASSOCIATED PRESS FILE PHOTO | June 2008

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NEW YORK — Oil prices tumbled nearly $4 a barrel yesterday, erasing many of last week's record gains in a single session as concerns about potential supply disruptions eased.

Light, sweet crude for August delivery fell $3.92, or about 2.7 percent, to settle at $141.37 on the New York Mercantile Exchange. Earlier, the contract sank as low as $139.50, or $5.79 below Thursday's price.

Traders drove prices sharply higher at the end of last week as they bet that conflict with Iran or some other event could cut supplies, and they didn't want to get caught unprepared over the long Independence Day weekend, analysts said. There was no floor trade Friday in the U.S. because of the July Fourth holiday.

As concerns about supply disruptions subsided yesterday, many traders sold off contracts they had bought as insurance last week.

"We got through the holiday without any major news," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "No news is good news, or in this case, no news is bearish news."

After the run-up of the past few weeks, however, analysts were skeptical that the drop signaled the start of a long-term decline. Prices set records in each of the previous six sessions.

In the U.S., record retail fuel prices edged even.

A gallon of regular gasoline now costs $4.108, a tenth of a penny more than the previous day's high, according to AAA, the Oil Price Information Service and Wright Express. Diesel is also at a record of $4.801, up nearly a penny.

Americans are now paying more than $1 billion more for gasoline per day than they did five years ago, according to an OPIS report yesterday. In June, the world's largest oil consumer spent about $47.38 billion on the motor fuel — nearly three times as much as in 2003.

Fred Rozell, retail pricing director at OPIS, said retail gas costs will likely continue to rise. He joined a number of analysts in predicting oil prices still have further to climb, and said that could push prices at the pump up by as much as 25 to 30 cents per gallon more.

"It doesn't look like there's anything that's going to drive (oil) prices down at this point, even reduced demand," Rozell said. "There's so much momentum with money going into commodities right now, it's going to continue to go up."

Fears that a fresh conflict in the Middle East could cut oil supplies eased over the weekend. Javier Solana, the European Union foreign policy chief, said he received a letter Friday from Iran responding to an offer of incentives meant to persuade Iran to halt enrichment. He also said he had a conversation with Iran's top nuclear negotiator, Saeed Jalili, that was "constructive in principle."

Iranian state media reported that Solana had agreed to talks later this month, but the EU official could not confirm the accuracy of those reports. He did not rule out the possibility of a meeting, however.