Published: August 04, 2008 10:31 am            

Oil Prices

By PABLO GORONDI

Associated Press Writer

Oil prices were down near $124 a barrel Monday as new data showed more signs of an economic slowdown in the United States.

But the market remained watchful of a tropical storm which could affect oil facilities in the Gulf of Mexico and concerns that a showdown over Iran's nuclear program could threaten crude supplies out of the Middle East also put a floor beneath oil prices.

By the afternoon in Europe, light, sweet crude for September delivery was down 84 cents to $124.26 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained $1.02 on Friday to settle at $125.10 a barrel.

In London, September Brent crude was down 49 cents to $123.69 a barrel on the ICE Futures exchange.

Fears of demand erosion in the United States were further confirmed Monday, as the U.S. Commerce Department said consumer spending, after adjusting for inflation, fell in June.

"Without an additional government policy jolt, the economy is headed for a very slow second half of 2008," said Peter Morici, an economist and business professor at the University of Maryland. "Either the third or fourth quarters should register negative GDP growth."

The National Hurricane Center issued a hurricane watch Sunday for the coast of western Louisiana and eastern Texas, which means that hurricane conditions are possible from Tropical Storm Edouard until late Monday in the area.

The fifth named storm of the 2008 hurricane season has sustained maximum winds of about 50 miles (80 kilometers) per hour. By Sunday night, Edouard was located about 80 miles (129 kilometers) east-southeast off the mouth of the Mississippi River and about 390 miles (630 kilometers) east of Galveston, Texas.

Regarding Iran, U.S. Secretary of State Condoleezza Rice said Saturday that the United States would have no choice "but to begin again to prepare sanctions resolutions for the (U.N.) Security Council" if Iran did not halt the development of its uranium enrichment program.

Rice said that given the U.N.'s current scheduling, sanctions probably could not be expected in the next few weeks, but the U.S. will begin working with allies toward that goal.

"There's concern about a potential confrontation down the line," said Victor Shum, an energy analyst with Purvin & Gertz consultancy in Singapore.

Iranian President Mahmoud Ahmadinejad said Sunday that diplomacy is the only way out of his country's standoff with the West as an informal deadline expired on an offer of economic and other incentives by six world powers if Iran agreed to curb enrichment.

Iran's leader made the comments a day after asserting that his country would not give up its "nuclear rights," signaling that it would refuse demands to stop enriching uranium or at least not to expand its enrichment work.

The United States and its European allies fear Iran intends to use the technology to develop material for nuclear weapons under the cloak of a civilian nuclear power program. Iran denies the accusation.

On Friday, oil shot up as much as $4 after news reports quoted Israeli Deputy Prime Minister Shaul Mofaz as saying that Iran's nuclear program was nearing a "major breakthrough" and that his country must be "prepared for every option."

Mofaz, a hawkish former defense minister and military chief, is a top contender to succeed Prime Minister Ehud Olmert, who announced last week he will resign in September amid a corruption probe.

In Nigeria, two French oil workers were kidnapped in the country's volatile southern oil region Sunday. A statement released by France's Foreign Ministry confirmed the kidnappings of the French nationals, but did not provide additional details about the two or say for which company they worked.

"You've got three supply-side worries pushing oil higher today: Iran, the storm and Nigeria," Shum said.

In other Nymex trading, heating oil futures fell 0.08 cent to $3.4360 a gallon (3.8 liters) while gasoline prices shed 0.36 cent to $3.0807 a gallon. Natural gas futures lost 15.8 cents to $9.231 per 1,000 cubic feet.

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Associated Press writers Alex Kennedy in Singapore and Martin Crutsinger in Washington contributed to this report.

        

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