March 6 (Bloomberg) -- Oil dropped to a two-week low in New York as the European Union offered to restart negotiations with Iran over its nuclear program, reducing the specter of war in the Middle East, source of 30 percent of the world’s crude.
Futures fell 1.9 percent after Catherine Ashton, the EU’s foreign-policy chief, issued a statement on behalf of China, France, Germany, Russia, the U.K. and the U.S. urging Iran’s nuclear envoy to meet to seek an accord. Commodities also declined as the euro-area economy contracted and on concern that a Greek swap deal will fail.
“Oil was weak earlier on economic worries but held up better than the other commodities,” said Phil Flynn, an analyst at PFGBest in Chicago. “Once the EU announced that it was ready for talks with Iran, the oil market started to really move lower. Anything that looks like some progress is going to push prices lower.”
Crude oil for April delivery dropped $2.02 to $104.70 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 17. Futures are up 5.9 percent this year.
Prices were little changed after the American Petroleum Institute reported oil supplies rose 4.58 million barrels to a five-month high of 346.5 million last week. The April contract fell $1.98 to $104.74 at 4:32 p.m. in electronic trading.
Brent oil for April settlement declined $1.82, or 1.5 percent, to end the session at $121.98 a barrel on the London-based ICE Futures Europe exchange.
Ashton offered the negotiations to Iran’s Saeed Jalili only hours after U.S. President Barack Obama called for more time to let diplomacy and sanctions solve the standoff with Iran.
‘Window of Opportunity’
There is a “window of opportunity” for a diplomatic solution to the deadlock with Iran, Obama said in response to a question at a White House news conference today, reiterating a statement he made yesterday at the start of a meeting with Israeli Prime Minister Benjamin Netanyahu.
Netanyahu took his campaign for stopping Iran’s nuclear program to Congress today. He met with U.S. House Speaker John Boehner and other congressional leaders, wrapping up a five-day trip to the U.S. and Canada.
Iran has threatened to block shipments through the Strait of Hormuz, a transit route for about 20 percent of the world’s globally traded crude, if its exports are blocked. The country is the second-biggest oil producer in the Organization of Petroleum Exporting Countries and pumped 3.45 million barrels a day last month, according to Bloomberg News figures.
Tension between Iran and the West over nuclear activities has added $20 a barrel to the price of oil, Richard Fox, London-based head of Middle East and Africa Sovereigns at Fitch Ratings Ltd., said today in London.
“The Iran threat is priced in for the time being,” said Mike Wittner, head of oil market research at Societe Generale in New York. “There’s a feeling that prices are too high given the weak economy and will result in demand destruction.”
Gross domestic product in countries using the euro declined 0.3 percent from the third quarter, the EU’s statistics office said today. Private investors that so far declared their participation in Greece’s debt restructuring hold about 20 percent of the bonds involved in a swap required for a bailout. The goal of the swap, which runs through March 8, is to cut by 53.5 percent the total, helping avert an uncontrolled default.
The Standard & Poor’s 500 Index fell 1.5 percent, the worst drop of the year. The dollar gained 0.8 percent to $1.3114 per euro. A stronger U.S. currency and weaker euro reduce the appeal of raw materials as an investment alternative.
“We’re seeing some progress” reducing tensions between Iran and the West, said Fred Rigolini, vice president of Paramount Options Inc. in New York. “When you take the war factor out, that’s pretty bearish. And there’s a very strong dollar today.”
Commodities declined to the lowest level since Feb. 17. The Standard & Poor’s GSCI Index of 24 raw materials decreased as much as 1.6 percent, led by coffee and lead.
The U.S. Energy Department boosted its oil-price projection for 2012. West Texas Intermediate oil, the grade traded in New York, will average $105.71 a barrel this year, up $5.31 from the February projection of $100.40, the Energy Information Administration, the department’s statistical arm, said today in its monthly Short-Term Energy Outlook. The price has averaged $101.79 so far this year.
“We think there’s more than just Iran behind the rise in prices,” said Eric Kreil, an analyst with the EIA in Washington, who helped write the report. “This is a tight market. We’ve had a number of outages in non-OPEC countries and are looking for demand to rise.”
Conflict in Sudan, South Sudan, Yemen and Syria has crippled production in the countries this year. Total output outside of OPEC was down about 1 million barrels a day last month because of the issues, Kreil said. Global consumption will rise 1.2 percent to 88.96 million barrels a day in 2012.
Electronic trading volume on the Nymex was 668,145 contracts as of 4:33 p.m. in New York. Volume totaled 511,740 contracts yesterday, 17 percent below the three-month average. Open interest was 1.56 million.
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