Monday, May 22, 2006; Posted: 8:18 AM(CDT)
LONDON (Reuters) - Oil prices fell $1 on Monday to a six-week low as concern that inflation may slow economic growth encouraged selling across commodities markets.
U.S. crude was trading 98 cents lower at $67.55 a barrel at 0819 GMT after falling more than $1 to its lowest level since April 10. Brent crude was down 84 cents at $67.85.
The drop added to a slide of nearly 5 percent last week after signs that the record cost of many raw materials was pushing up the cost of living and hitting consumers' pockets. Rising inflation may force central banks to target higher interest rates, in turn slowing growth and cutting demand for commodities.
"This is a continuation of the bubble-bursting in commodities and energy markets last week," said Christopher Bellew of Bache Financial in London.
Other commodities also slipped on Monday. Silver fell over three percent to a four-week low while gold dipped just under three percent.
"Oil prices have suffered a hangover with the fall in other commodities," said David Thurtell, commodities strategist at the Commonwealth Bank in Sydney. "They were too far out of line with fundamentals and could still have further to fall."
Rising gasoline stocks
Weakness on gasoline futures added to the slide. U.S. gasoline fell over three cents to $2.0069 a gallon.
U.S. government data last week showed domestic motor fuel stocks rose for the third consecutive week. Rising stocks have helped alleviate concern that changes to cleaner-burning fuels might cause supply problems during the peak-demand summer driving season.
The dispute between Iran and the West over Tehran's nuclear dispute rumbled on at the weekend.
The United States said it made no sense for it to offer assurances that it would not try to overthrow the Iranian government if Tehran agreed to a Europe-backed package of incentives to give up its nuclear ambitions. Diplomats have said that Europe wanted Washington to provide some kind of security framework to back the package but U.S. Secretary of State Condoleeza Rice said it had not been asked to do so. Iran has said it could not trust such guarantees anyway. Fears that output from Iran could be disrupted by the row pushed U.S. oil prices to a record of $75.35 in April.
OPEC looks set to keep its output policy unchanged at its meeting next week in Caracas.
The Organization of the Petroleum Exporting Countries has been pumping close to full tilt for a year now in response to buoyant demand, but has been able to do little about high prices. Iran's OPEC governor Hossein Kazempour Ardebili said on Friday that OPEC supply limits were unlikely to change, even though fundamentals suggested oversupply and that the market could absorb an output cut of up to 1.2 million barrels per day. Actual OPEC production has been reduced by militant unrest in Nigeria, with attacks taking out one quarter of Nigeria's exports, although Royal Dutch Shell told Reuters on Friday that it expects to return to its abandoned fields "sooner rather than later".
