Cease-fire triggers oil price drop

Oil prices dropped nearly a dollar Monday as traders anticipated the upcoming Mideast cease-fire and responded to the positive news that BP would be able to maintain half of its production at a large oil field in the U.S. state of Alaska.

Light sweet crude for September delivery fell .92 cents to $73.43 a barrel in mid-afternoon Asian electronic trading on the New York Mercantile Exchange.

September Brent at London’s ICE Futures exchange slipped .73 cents to trade at $74.90 a barrel.

“It’s a very volatile market, but this week is starting with a lot of good news,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “We face some calming news, so the market is moderating. “

In other Nymex trading, natural gas futures fell 25.1 cents to $7.018 per 1,000 cubic feet. Gasoline futures dropped 3.73 cents to $2.0270 a gallon, and heating oil futures fell slightly to $2.0254 a gallon.

A U.N.-brokered cease-fire between Israel and Lebanon’s Hezbollah militants took effect at 0500 GMT Monday, ending a month of violence that has killed more than 900 people, devastated much of southern Lebanon and forced hundreds of thousands of Israelis into bomb shelters.

The market had worried that the conflict could affect oil supply if it spilled into other countries in the oil-rich region, particularly Iran, OPEC’s No. 2 oil producer and a backer of Hezbollah. Those fears raised crude prices to a record $78.40 a barrel on July 14, two days after the fighting started.

The other positive development to the market came Saturday, when BP PLC announced it would keep one side of the Prudhoe Bay oil field open as it replaces corroded pipes, enabling it to funnel up to half its previous output. BP had previously said it would have to completely shut down the nation’s largest oil field after discovering a leak nearly a week ago.

Prices had fluctuated widely last week, soaring after BP’s initial announcement, then dropping back Thursday on fears that the foiled trans-Atlantic airplane attacks could dampen jet fuel demand and consumer confidence.

Shum said those were knee-jerk reactions that proved how volatile the market was and warned that Monday’s price drop could reverse itself if on any bad news.

Prices continue to be supported by supply disruptions in Nigeria because of civil unrest, the standoff between the United Nations and Iran over its nuclear program. Traders are also be watching weather patterns in the Caribbean for potential hurricanes that could strike Gulf coast refineries, as well as signals for where fuel demand is headed.

The International Energy Agency’s monthly report, which came out Friday, cut its global oil demand growth estimate to 1.19 million barrels a day amid shrinking demand in developed industrialized nations.

The IEA said net crude oil losses following BP’s problems at Prudhoe Bay will be lower than expected, and that Saudi Arabia and industry-held stocks could offset these.

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