NEW YORK – Oil futures fell Monday and analysts said retail gasoline prices could soon dip below $2 a gallon in some parts of the country. But traders said any relief would likely be short-lived, warning of an upturn in prices come spring.
"We should see gasoline at the pump drop 15 to 20 cents in the coming weeks as it catches up with falling wholesale prices," said James Cordier, president of Liberty Trading in Tampa, Fla. "But if the economy stays strong, gas prices are set for a pretty big rebound in April and May."
Light sweet crude for March delivery fell 60 cents to close at $61.24 a barrel on the New York Mercantile Exchange, as traders weighed lagging demand and bulging supplies against political tensions in major producing nations. Brent futures lost 26 cents to close at $59.38 a barrel on the ICE Futures exchange.
Traders remained concerned about the international dispute over Iran's nuclear activities and to a lesser extent unrest in Nigeria.
"Healthy U.S. crude inventories — indicating a well-supplied market — would have justified a substantial downward correction but latest supply worries about Iran put a floor on declining prices," said Vienna's PVM Oil Associates.
Heating oil futures fell by less than a penny to $1.6386 per gallon, while natural gas futures dipped 7.3 cents to close at $7.243 per 1,000 cubic feet.
Front-month gasoline futures fell 3.09 cents to settle at $1.4312 per gallon, and are down more than 30 cents since Jan. 30. At the retail level, gasoline prices averaged $2.28 a gallon nationwide last week. In the Midwest, retail prices are about 10 cents below the nationwide average.
"We will probably see some states this week with retail gasoline prices of $2 a gallon or lower," said analyst Tom Kloza of Oil Price Information Service. However, "it won't last into April," he said.
In Tehran on Monday, officials announced that Iran, the second-biggest oil producer in the Organization of Petroleum Exporting Countries, had indefinitely postponed its negotiations with Moscow over a Russian plan to enrich Iranian uranium and would consider withdrawing from the Nuclear Nonproliferation Treaty if it considers it detrimental to its nuclear plans.
Crude oil futures had slipped Friday on reports of less demand and bigger supplies. The International Energy Agency, the Paris-based energy watchdog, reported falling demand because of the high costs of crude.
The agency slashed its fourth-quarter growth estimate by 420,000 barrels a day to a negligible 80,000 barrels a day even as it maintained its forecast for 2.2 percent oil demand growth in 2006 due to expected strong economic expansion.
It pinned the big year-end demand drop on high energy prices, mild U.S. weather that cut heating demand, and market disruptions stemming from hurricanes Katrina and Rita in the United States.
The IEA also cut its estimates of demand growth in the first and second quarters of this year by 120,000 barrels a day, and by 130,000 barrels a day in the third quarter.
With oil prices retreating in recent weeks, Royal Dutch Shell PLC's chief executive on Monday said Britain's government should lower taxes on domestic oil producers in order to spur investment in North Sea drilling projects. Britain's Treasury Chief Gordon Brown doubled a "windfall" tax on oil production in the British North Sea from 10 percent to 20 percent in 2006, bringing protests from oil companies and free market advocates.
"If oil prices fall we'd like to see taxes fall," Shell Chief Executive Jeroen van der Veer said at an industry conference, Dow Jones Newswires reported.