Oil Prices Settle Over $70 as Iran Letter Discounted

Crude-oil futures rose Tuesday amid persistent concerns over Iran's nuclear ambitions and after the U.S. government forecast elevated oil prices through 2007.

Oil prices have climbed in recent weeks on anxiety that Iran, the No. 2 producer in the Organization of Petroleum Exporting Countries, could cut supplies because of international pressure to modify its nuclear program.

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Light, sweet crude for June delivery rose 92 cents to settle at $70.69 a barrel on the New York Mercantile Exchange. June Brent crude futures on London's ICE Futures exchange rose 93 cents to $71.14 a barrel.

On Monday, a letter from Iran's leader to President Bush proposing "new solutions" to the tension eased market worries slightly, causing the price of Nymex crude to fall as low as $68.25 before settling 42 cents lower. But Secretary of State Condoleezza Rice swiftly rejected the letter on Tuesday and analysts said that was the impetus for prices to reverse course.

Wachovia Corp. economist Jason Schenker said Rice's comment removed the "glimmer of hope that the Iran situation could come to a somewhat quiet resolution."

"The bulls are back in the market," said Man Financial broker Andrew Lebow.

Other factors pushing up oil prices are unrest in Nigeria, violence in Iraq and rising resource nationalism in South America. Some 500,000 barrels per day of Nigerian production, most of it operated by Royal Dutch Shell PLC, remain off-line because of violence there, and more than 300,000 barrels per day remain shut down in the Gulf of Mexico since Hurricane Katrina battered offshore platforms in August.

The U.S. Energy Department said Tuesday that with little evidence of a significant increase in global supplies "crude oil prices will remain high through 2007." The agency also forecast an average U.S. retail gasoline price of $2.71 a gallon, an increase of 9 cents a gallon from its April forecast. Last summer, pump prices averaged $2.37 a gallon.

Saudi Arabia's oil minister suggested relief — though still far off — was nonetheless in sight, saying prices will stabilize by 2010.

Speaking at a financial conference in Riyadh, Ali Naimi said the world's refining capacity would nonetheless continue to be of concern over the next four years.

"Oil production during this decade will hold steady," Naimi said, adding that the kingdom — the largest oil producer in the world — was nonetheless ready to increase its crude output if necessary.

In other Nymex trading, gasoline futures rose 4.3 cents to close at $2.0466 a gallon, heating oil futures climbed 4.06 cents to end at $1.9951 a gallon. Natural gas futures finished 11.5 cents lower at $6.581 per 1,000 cubic feet.

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