WASHINGTON – Oil prices fell more than 3 percent Monday, dipping below $70 a barrel amid concerns about weakening demand and rising inflation. Some analysts said the selloff was triggered by profit-taking.
"This is demand destruction not on a consumer level. It's demand destruction on a trading level," said Michael Guido, Societe Generale's director of commodity strategy.
"The reality of it is that the market was in desperate need of a correction," Guido said. "There was not a big change in the world economy."
Still, the International Energy Agency said last week that high prices have pushed oil demand downward, and the Federal Reserve raised concerns about inflation, suggesting interest rates might be pushed higher in order to slow growth.
Saudi Arabia said Monday that the market is well supplied, in part because high prices have trimmed consumption levels.
"There is no lack of capacity right now," Saudi oil minister Ali Naimi told reporters on the sidelines of an energy conference in Amman, Jordan. Asked about the impact of high prices, Naimi said: "In general, when prices are high, people check their pockets and when they are lower, they open them."
Light, sweet crude for June delivery fell $2.63 to settle at $69.41 a barrel on the New York Mercantile Exchange. That followed a drop of $1.42 on Friday.
Nymex gasoline futures fell 12.45 cents to settle at $2.054 a gallon, heating oil futures finished 10.17 cents lower at $1.945 a gallon and natural gas futures fell 15.7 cents to end at $6.123 per 1,000 cubic feet.
June Brent crude futures on London's ICE Futures exchange fell $1.97 to $70.35 a barrel.
James Cordier, president of Liberty Trading in Tampa, Fla., said the selloff could be short-lived.
"Hurricane season is right around the corner," Cordier said. Last year's hurricanes Katrina and Rita devastated oil and natural gas production in the Gulf of Mexico, and forced the shutdown of refineries and pipelines that deliver fuel to the East Coast and Midwest markets.
In a sign of worsening relations with Venezuela, the Bush administration said Monday it would ban arms sales to the oil-rich South American nation because of what it claims is a lack of support by President Hugo Chavez's leftist government for counterterrorism efforts.
Chavez, who has called Bush a "terrorist" and denounced the U.S.-led war in Iraq, brushed aside the matter, saying his government would not respond with punitive measures.
PFC Energy analyst Jamal Qureshi said the arms-sales ban was "still below the radar for the big money traders" due to the lack of any signal that "large volumes of supply" will be imminently disrupted.
"Unless this blows up into something much bigger, which it is unlikely to do, it still looks like so much huffing and puffing," Qureshi said.
The markets also seemed to brush off the incident, focusing instead on a recent forecast calling for softer oil-demand growth.
The Paris-based IEA said in its monthly oil market report Friday that high prices and mild temperatures curbed U.S. oil demand in the first quarter. The agency also noted strong exports from former Soviet countries and concluded that this implied weakening demand.
Specifically, the energy watchdog cut 220,000 barrels a day off its demand growth forecast for the year, trimming it to 1.25 million barrels a day and thus putting average daily demand at 84.84 million barrels.
But concerns about Iran, a major oil exporter, left limited room for prices to fall.
The U.N. atomic agency has found traces of highly enriched uranium at an Iranian site linked to the country's defense ministry, diplomats said Friday. The finding added to concerns that Tehran was hiding activities related to making nuclear arms.
European Union foreign ministers were to meet Monday in Brussels, Belgium, to consider sweetening a package of incentives that would entice Iran to suspend uranium enrichment — an issue that has now reached the U.N. Security Council but was put on hold to give the EU more time for diplomacy.