Oil fell below $70 on Monday
on hopes that tension over Tehran's nuclear ambitions will ease after Iran said
its president would send a letter to U.S. President George W. Bush seeking to
resolve the "current situation in the world."
U.S. light crude for June delivery lost 34 cents to $69.85 a barrel by 0835
GMT, erasing gains from late Friday. London Brent crude fell 39 cents to $70.56
a barrel.
Prices are more than $5 below their record highs touched two weeks ago but up
about 15 percent since the start of the year.
An Iranian official said on Monday that President Mahmoud Ahmadinejad would
send a letter to his U.S. counterpart to be delivered to the Swiss Embassy in
Tehran, which represents U.S. interests in Iran.
"In this letter, he has given an analysis of the current world situation, of
the root of existing problems and of new ways of getting out of the current
vulnerable situation in the world," government spokesman Gholamhossein Elham
said.
The United States has led action against Iran's nuclear plan, which it says
is aimed at building atomic weapons.
Iran, which has been reported to the U.N. Security Council and has so far
been defiant to calls for it to stop work on its uranium enrichment activities,
says it needs nuclear fuel for civilian use.
Analysts were cautious over the impact of the letter on oil prices.
"The news from Iran is certainly bearish, at least immediately anyway. But
the extent of how bearish it is going to be depends on the content of the
letter, which no one knows as yet," said Tetsu Emori, the chief commodities
strategist at Mitsui Bussan Futures.
Analysts are expecting gasoline supplies in the United States to tighten
ahead of the summer driving season late this month, despite a surprise
stock-build last week, which helped drive down oil prices by more than 6
percent.
Geopolitical concerns and the weak U.S. dollar -- which sank to an
eight-month low against the yen -- have prompted fund speculators to pile into
the metals markets, sending spot gold to a fresh 25-year peak, and copper struck
record highs.
International Energy Agency (IEA) director Claude Mandil said on Monday he
expected oil prices to stay high for at least two to three years because of high
global demand and tight supply.
"They (oil companies) have not invested enough for the last 20 years," Mandil
said.
"This is a cyclical business. We had low prices in the 1990s, which was
unfortunate for investment in future production. We now have accelerating
investment, but that will not (see) results overnight," he told reporters in
Australia.
Adding to the growing natural resource nationalism in the Andean region,
Venezuela -- the world's fifth-largest oil exporter -- said it was seeking to
boost royalties and income tax on four heavy oil projects that process some
620,000 barrels per day (bpd) in the Orinoco Belt.
The announcement came less than a week after Bolivia rattled markets by
sending troops into oil and gas fields in a surprise nationalisation of the
country's energy sector.
In Nigeria, a quarter of oil production remained shut in due to militant
violence, although a major oil union on Thursday suspended a planned shutdown of
the local unit of Exxon Mobil Corp. after agreeing to a deal.