NEW YORK - Crude oil futures declined for a fifth session yesterday, the longest period in 10 months, as a cease-fire in Najaf eased concern that shipments from Iraq could be disrupted.
New York oil fell as low as $42.50 a barrel after Iraq's most senior Shiite Muslim cleric, Grand Ayatollah Ali al-Husseini al-Sistani, arrived in Najaf to help end an uprising by militiamen led by cleric Muqtada al-Sadr, government officials said. Violence and the disruption of supply in Iraq helped drive oil in New York to a record $49.40 a barrel Friday.
"Reality is finally setting in," said Aaron Kildow, a broker at Prudential Securities Inc. in New York. "Somewhere between $38 and $40 a barrel would be justified. There was no good fundamental reason for us to be at $50," he said.
Crude oil for October delivery fell 37 cents, or 0.9 percent, to close at $43.10 a barrel on the New York Mercantile Exchange. The October futures contract has plunged 9.5 percent over five sessions. Futures were 35 percent higher than a year earlier.
In London, the October Brent crude oil futures contract fell 35 cents, or 0.9 percent, to $40.33 a barrel on the International Petroleum Exchange, the lowest close since Aug. 4.
"We're seeing the beginning of a big exit by the speculative interests," said John Kilduff, senior vice president of energy risk management at Fimat USA Inc. in New York. "The ascent was particularly steep and rapid, as is the decline."
Hedge fund managers and other large speculators increased their net-long positions in crude oil futures and options in the week that ended Aug. 17, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets that prices will rise, outnumbered short positions by the equivalent of 82,794 futures contracts, the highest since the first week of June.
The selling that began when oil didn't reach $50 a barrel Friday accelerated as Iraq increased shipments through its southern pipeline network.
Iraq also is resuming oil sales from its northern fields through Turkey for the first time since May, according to an official at Iraq's State Oil Marketing Organization. Exports have been disrupted in the past three months because of repeated acts of sabotage on a pipeline that is connected to the Turkish export terminal at Ceyhan.
"Some of the things that we were worried about have been resolved," Kilduff said.
A top oil official told the Associated Press that a sabotage attack on a cluster of about 20 oil pipelines in southern Iraq has cut daily exports from the key oil-producing region by half, down to 900,000 barrels.
The news out of Iraq was the kind of information that traders and market analysts have noted in recent weeks to explain the rapid run-up in oil prices. But that trend buckled yesterday, as prices fell as low as $42.50 in intraday trading.
Prices rebounded from the day's low on reports that oil flows to tankers at Iraq's southern export terminals slowed. Saboteurs attacked eight pipelines linking a southern oil field to a pumping station near the city of Basra, Reuters reported, citing an unnamed oil official. The official said the pipelines are part of a backup system, Reuters said.
"We are waking up and recognizing that a risk premium of $12 to $15 isn't justified," said Rick Mueller, an analyst with Energy Security Analysis Inc., a Wakefield, Mass., consulting firm. "The numbers don't support these prices. Prices should be in the mid-$30s, and are slowly working that way."
U.S. crude oil supplies of 291.3 million barrels in the week that ended Aug. 20 were 4.6 percent higher than a year earlier, according to the Energy Department.
"With prices at $43 or $44 a barrel, you are going to produce every barrel you can. This will be reflected in U.S. inventories," Mueller said.
Gasoline for September delivery fell 3.14 cents, or 2.6 percent, to close at $1.1632 a gallon in New York, the lowest since June 30. Futures were 7.7 percent higher than a year earlier.
Retail gasoline prices in the United States touched a record $2.064 a gallon in May. The U.S. average was $1.884 as of Monday, according to government data.
"I don't think the decline in crude oil prices will have much of an effect on gasoline, since the recent rise in oil was never reflected in gasoline," said George Gaspar, an energy analyst with Robert W. Baird & Co. in Milwaukee.