Oil Prices Have Biggest Weekly Decline of ’04

Only days after flirting with $50 a barrel, oil prices posted their biggest weekly drop in more than a year Friday, and analysts predicted further declines if tensions in Iraq continued to stabilize.

Despite edging up 8 cents a barrel Friday, to $43.18, oil for October delivery on the New York Mercantile Exchange tumbled $4.68 a barrel, or 9.8%, for the week -- its first weekly decline since mid-June.

The weekly drop also was the largest since oil prices plunged after the onset of the Iraq war in March 2003.

But retail gasoline prices edged higher after falling for most of the summer, and prices of gasoline futures contracts rose 1.37 cents, or 1.2%, to $1.1769 a gallon in New York trading Friday.

Fuel prices are likely to stay firm through Labor Day and then ease as vacation travel ends and demand by motorists tapers off, said Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business.

Prices are unlikely to drop much below current levels, though, because gasoline demand will remain relatively robust and months of high oil prices will continue to work their way to the retail level, he said.

“The price of gasoline at the pump for the last few weeks hasn’t come close to reflecting the price of crude,” Baxter said.

The average pump price for self-serve regular gasoline in Los Angeles County was $2.072 a gallon Friday, up about a penny from a week earlier, according to the Automobile Club of Southern California. The lowest pump prices in Los Angeles and Orange counties have moved up during the week from about $1.90 a gallon to the range of $1.92 to $1.95.

Crude oil reached a closing high of $48.70 a barrel Aug. 19 and briefly traded above $49 the next day. (Adjusted for inflation, however, oil prices remain well below their levels reached in 1981 after the Iranian revolution.)

Oil’s jump was attributed to tight world supplies and a rash of disruptions in several producing countries.

Among them: violence in Iraq that intermittently shut down its oil fields and pipelines, a recall election challenging the government of Venezuelan President Hugo Chavez, financial problems at giant Russian oil producer Yukos and fears of terrorism.

Hedge funds and other institutional investors also speculated heavily on oil, further bidding prices higher. But just as $50-a-barrel oil appeared inevitable, many of those supply fears were allayed, at least temporarily, and prices headed lower.

This week’s decline was the largest since the week ended April 25, 2003, when oil dropped $4.29 a barrel, or 14%. A month earlier, crude prices had plunged $8.47 a barrel, or 24%, in the week ended March 21, after the Iraq war began.

“The Russian situation with Yukos has appeared to calm down, and the Venezuela elections couldn’t have gone more smoothly,” said John Kilduff, energy analyst at commodities brokerage Fimat USA Inc. in New York.

“It also looks like the Olympics will close without a terrorist event,” he said, “and one can’t underestimate the sea change that’s occurred in Iraq with the arrival of Grand Ayatollah Ali Sistani.”

The revered Shiite Muslim leader brokered a deal this week for the withdrawal of forces loyal to rebel cleric Muqtada Sadr, a development that was expected to end three weeks of fighting that included attacks on Iraq’s oil infrastructure.

In addition, Iraq -- which ships most of its oil from its southern facilities on the Persian Gulf -- is increasing exports through its northern facilities into Turkey, Kilduff said.

“It’s just going to be another factor to help push oil prices lower,” he said.

The Organization of the Petroleum Exporting Countries, led by Saudi Arabia, also has added to the downward pressure on prices by suggesting that it might agree at its next meeting, in September, to boost production.

Even so, oil prices remain $11.97 a barrel, or 38.4%, higher than a year ago.

In addition, saboteurs this week continued attacks on Iraqi pipelines and other oil facilities, and analysts cautioned that the markets remained skittish about potential supply disruptions. They also noted that despite OPEC’s talk of more production, the cartel has little excess capacity.

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Crude futures

Near-term crude oil futures in New York, per barrel, weekly closes and latest

Friday: $43.18

Source: Bloomberg News