Tensions surrounding Iran election fail to boost crude
NEW YORK (MarketWatch) -- Oil futures fell on Monday, as U.S. dollar strength and concern over ample global crude supplies offset any potential support from the post-election turmoil in Iran.
Crude for July delivery was down 61 cents, or 0.8%, to $71.44 a barrel in electronic trading on Globex.
Earlier, the contract hit an intraday low of $70.71 a barrel.
"Oil prices are lower this morning as the U.S. dollar has continued to strengthen and as market participants fretted that rising oil prices and the rise in long dated Treasury yields could hinder an economic recovery," said Nimit Khamar, analyst at Sucden Financial Research, in a note to clients.
Oil futures ended last week with a gain of 5.3%, but in Friday's trading session crude fell 64 cents to close at $72.04 a barrel on the Nymex after the OPEC cartel said it increased May output for a second month.
The Organization of the Petroleum Exporting Countries said in a monthly report Friday that May output from its 12 members averaged 28.27 million barrels a day, up 135,000 barrels from a month ago. See full story on OPEC production.
"Stocks of oil are high all around the world -- which suggests that on a supply/demand basis, oil prices should fall," said James Williams, an economist at WTRG Economics.
"However, crude prices are supported because investors are using oil as a hedge against the dollar and inflation," he said.
In the currency markets on Monday, the U.S. dollar was higher versus most major rivals, lifted by dollar-friendly comments by Russian officials and a weekend pledge by finance ministers from the Group of Eight nations to ponder strategies for exiting massive economic stimulus measures before inflation threats emerge.
The dollar index (DXY 80.82, +0.68, +0.85%) , a measure of the greenback against a trade-weighted basket of major currencies, traded at 80.901, up from 80.158 in North American trade late Friday afternoon. See Currencies.
Dollar strength typically weighs on dollar-denominated commodities such as oil because it makes them more expensive for holders of other currencies.
Turmoil in Iran
Post-election turmoil in Iran has increased the geopolitical risk from the region, Khamar said. "However, the current protests against the re-election of Mahmoud Ahmadinejad are unlikely to affect crude supply in the immediate term."
The supreme leader of Iran has ordered an investigation of allegations of vote fraud in the nation's presidential election, The Wall Street Journal reported, citing state television reports.
The Ayatollah Ali Khamenei ordered the investigation of fraud claims by the opposition leader, Mir Hossein Mousavi, the report said.
Mousavi's backers launched street protests over the weekend after the incumbent President Mahmoud Ahmadinejad was declared the winner in Friday's election.
If it holds, Ahmadinejad's victory, which is widely viewed as fraudulent, could create instability in Iran, said Cliff Kupchan, analyst at political consultancy Eurasia Group.
"While markets are not focused on Iran, Ahmadinejad's win will keep in place a factor that can drive further momentum in oil markets," Kupchan said in a note to clients. "And the president's proclivity to rattle sabers could give force to that factor."
Williams of WTRG Economics said that if the turmoil over the Iranian election happened a year ago, oil prices would be soaring.
The tension would have raised a "small potential of a supply interruption" and sent prices up by $5 to $10, he said.
But "maybe it's the news about the Khurais oil field coming on line" that's kept oil prices from climbing, he said. Saudi Arabia started production at the Khurais oil field in the eastern part of the nation last week, according to news reports.
"That should add to spare production capacity, which is already up 3 million barrels from last year," said Williams.
Also on Globex, July reformulated gasoline fell 1 cent to $2.03 a gallon and July heating oil was down 1 cent at $1.83 a gallon.
July natural-gas futures gained 3.20 cents, or 0.7%, to $3.891 per million British thermal units.
