Oil falls over $1 on Iran letter to Bush

Mon May 8, 9:38 AM ET

Oil fell over $1 on Monday on hopes tension over Iran's nuclear ambition will ease after Tehran made an unprecedented move to contact Washington.

U.S. light crude for June delivery was down $1.10 to $69.10 a barrel by 1330 GMT. London Brent crude fell $1.06 to $69.89 a barrel.

Iran's President Mahmoud Ahmadinejad has written to President Bush, Iranian government spokesman Gholamhossein Elham said.

"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," he said.

The letter is the first publicly announced personal communication from an Iranian Premier to a U.S. President since ties between the two countries were broken after the 1979 Islamic revolution.

The United States has led international action against Iran's nuclear plan, which it says is aimed at building atomic weapons.

Iran says it needs nuclear fuel for civilian use. It has reacted defiantly to the possibility of any U.N. resolution demanding it halt its nuclear program. At the weekend, it reissued a threat to leave the nuclear Non-Proliferation Treaty.

Analysts were cautious over impact of the letter.

"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.

The price of oil has risen over $8 to date this year as investors worry the Iran dispute may eventually lead to disruption to oil output from OPEC's second largest producer.

But the oil price has fallen $5 from record highs touched two weeks ago after concerns about U.S. gasoline supplies eased last week when motor fuel inventories rose.

BULLISH OUTLOOK

International Energy Agency 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.

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 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 nationalization of the country's energy sector.

Source: AP via Yahoo! News
http://news.yahoo.com/s/nm/20060508/bs_nm/markets_oil_dc