Oil prices dropped nearly $2 a barrel Tuesday on hopes that the inauguration of a new president in OPEC member Nigeria would contribute to a stable supply from the Niger Delta region.
A formal meeting over the weekend between U.S. and Iran officials also soothed traders' concerns about a potential conflict between the two.
Light, sweet crude for July delivery lost $1.88 to $63.32 a barrel in midday trading on the New York Mercantile Exchange. Before the long weekend, U.S. crude oil climbed more than $1 to $65.20 Friday. Monday there was no floor trade and no closing price in the U.S. because of the Memorial Day holiday.
Brent futures for July fell $1.07 to $68.64 a barrel on London's ICE Futures exchange. Traders said Brent crude was better supported than Nymex crude as some 200,000 barrels per day of supply from the North Sea is likely to be off-line due to regular maintenance scheduled to begin this week.
But in the U.S., developments in Nigeria and Iran appeared to dominate market movement on Tuesday.
“All the geopolitical concerns we had going into the weekend have eased some, which is taking some risk premium out of the price,” said Phil Flynn, an energy analyst at Alaron Trading Corp. in Chicago.
In Nigeria, Umaru Yar'Adua, 56, was sworn in as new president, replacing Olusegun Obasanjo who stepped down after eight years. It marked the first successful transfer of power from one elected government to another in Africa's most populous country with a history of long years of military rule.
In his inaugural address Tuesday, Yar'Adua called for an immediate end to hostilities in the country's southern oil region. The main militant group, the Movement for the Emancipation of the Niger Delta, said they are considering the request. The group had earlier rejected all calls to lay down arms until their demands were met.
Also, Nigerian labor union officials ordered oil workers back to work Saturday after the government agreed to a 15 percent raise for all employees of the Nigerian National Petroleum Co. The unions began the strike Thursday and threatened to target exports in hopes of reversing the sale of government refineries.
Meanwhile, the U.S. and Iran met for four hours on Monday about Iraqi security, marking the first formal meeting between the two countries in 27 years. Iranian Ambassador Hassan Kazemi Qomi told The Associated Press that the two sides would meet again in less than a month. U.S. Ambassador Ryan Crocker said Washington would decide only after the Iraqi government issued an invitation.
Tension between the West and Iran has increased over the past months as Iran has expanded its uranium enrichment program. Traders and analysts fear any conflict between the U.S. and Iran could result in the closure of the Strait of Hormuz, through which tankers ship carry about 17 million barrels of crude oil a day, according to the U.S. Energy Information Administration.
In other trading, gasoline futures rose nearly less than a penny to $2.4045 a gallon after the Memorial Day holiday, the unofficial kickoff to the summer driving season. Traders are anticipating higher prices, believing that Americans are ready to take to the highways despite near-record gasoline prices.
Heating oil futures slipped 5.47 cents to $1.8844 a gallon on the Nymex, while natural gas prices fell 7 cents to $7.570 per 1,000 cubic feet.
