WASHINGTON – Crude oil prices fell more than 2 percent Monday as world powers stepped up efforts to broker a truce between Israel and militants in Lebanon.
But perhaps the bigger surprise in the energy complex was the sharp decline for natural gas futures, which plunged by almost 9 percent despite a heatwave that drove-up demand for gas-fired power plants.
"It goes to show you there's no sure things in these markets," said Man Financial broker Andrew Lebow, who attributed the selloff in natural gas to traders' focusing on longer-term forecasts calling for cooler weather.
Even if an immediate Middle East cease-fire is not reached, analysts said the fact that the Israel-Lebanon violence has not spread in the region should help contain, if not sharply reduce, oil prices. The market's biggest fear is that Iran, a financial backer of Hezbollah and OPEC's No. 2 supplier, could be drawn into the conflict.
Light sweet crude for August delivery slid $1.73 to settle at $75.30 a barrel on the New York Mercantile Exchange.
The front-month futures contract reached an intraday record of $78.40 a barrel this past Friday before settling at an all-time closing high of $77.03.
September Brent crude futures on London's ICE Futures exchange fell $1.66 to settle at $75.92 a barrel, after hitting a new high at $78.18 earlier Monday.
"At some point the market is going to become immune to every little attack," said BNP Paribas Commodity Futures broker Tom Bentz.
Also pushing prices lower were somewhat conciliatory remarks by Iran over the weekend relating to its nuclear standoff with the West. Iran said Sunday that Western incentives to halt its nuclear program were an "acceptable basis" for talks, and it is ready for detailed negotiations.
Fighting between Israel and militants in Lebanon escalated over the weekend, raising fears of a possible full-blown war. That comes on top of persistent market anxieties about the West's nuclear standoff with Iran, threats of supply disruptions in Nigeria and the Gulf of Mexico hurricane season.
Israeli fighter bombers pummeled Lebanese infrastructure Monday, setting Beirut's port ablaze and hitting a Hezbollah stronghold in attacks that killed at least 17 people. Hezbollah retaliated by firing rockets that flew farther into Israel than ever before.
Both Israel and Hezbollah signaled over the weekend that their attacks would only intensify fighting that so far had killed at least 174 in Lebanon and 23 in Israel.
But on Monday the market responded to the possibility of an end to the fighting:
• A senior U.N. envoy said Monday he will present Israel with "concrete ideas" to end the latest round of fighting after meeting with Lebanon's prime minister, but he warned that no deal was imminent.
• Iran's Foreign Minister Manouchehr Mottaki said a cease-fire, followed by a prisoner swap would be acceptable and fair. Israel has demanded the freeing of its soldiers before any talk of a halt in fighting.
• A senior Israeli official said Israel would agree to a cease-fire in its six-day-old offensive against Hezbollah if the guerrillas withdraw from the border area with Israel and release two captured Israeli soldiers.
Gasoline futures dropped by 3.96 cents to settle at $2.2853 a gallon while heating oil prices fell 5.66 cents to settle at $2.0194 a gallon. Natural gas prices fell 56.4 cents to settle at $5.783 per 1,000 cubic feet.