IPE Brent falls on Iranian gesture to resolve tension with US

London (Platts)--8May2006

IPE Brent crude futures in London fell Monday on news that Iranian
President Mahmoud Ahmadinejad has sent a letter to US President George W. Bush
to "propose new ways" to resolve tensions over the country's nuclear
ambitions, traders said.
The gesture could hint at new efforts to resolve the standoff over
Tehran's nuclear program, which has pushed crude prices to record highs on the
back of fears over disruption to Iranian crude oil production, traders said.
"The letter was unexpected following the negative rhetoric of last week
but the market is still technically a sell even without it," said one trader.
By 1050 GMT, the front-month June Brent futures contract had fallen 70
cents to trade at $70.25/barrel close to the intra-day low so far of
$70.09/barrel and flirting with the major support level of $70/barrel.
All of the bullish fundamentals that have kept the price of crude within
a $72/barrel and $75/barrel range are still there such as weak gasoline
prices, said one broker.
But the pull back in the price of crude, triggered by an unexpected build
in gasoline and crude oil inventories in the US that began last Wednesday, has
continued on Monday.
Hedge funds have reversed long positions and continue to sell. "We have
not hit any fresh lows from last week in either the June or July Brent
contracts and there could well be a bounce later on today but then again many
people thought that there would be one at the end of last week," said one
broker.
There remains enough bearish elements to this market to push the price of
IPE Brent futures through the $70/barrel, support level. Dampening of demand
for gasoline in the US, Crude inventories remain high despite the shortage of
Nigerian crude and refineries are reaching the end of their maintenance
season.

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