Oil Is Little Changed After Rebounding From Seven-Week Low

By Christian Schmollinger

July 25 (Bloomberg) -- Crude oil was little changed after rebounding from a seven-week low yesterday as some traders purchased contracts on speculation prices fell too far during the past two weeks.

Traders acquired futures after oil dropped more than $3.50 a barrel on July 23. U.S. crude supplies declined in eight of the past 10 weeks as refiners delayed buying because of high prices and falling fuel demand. Israel's top military commander said force may be needed to stop Iran's nuclear research.

``The Iran-Israel situation has quieted down a little bit but that was a reminder that we shouldn't be forgetting that situation,'' said Toby Hassall, an analyst with Commodity Warrants Australia Ltd. in Sydney. ``We're seeing a bit of consolidation at the current levels.''

Crude oil for September delivery was at $125.55 a barrel, down 6 cents, on the New York Mercantile Exchange at 10:12 a.m. Singapore time. Yesterday, oil rose $1.05, or 0.8 percent, to settle at $125.49 a barrel. Futures are up 65 percent from a year ago.

Futures touched $123.50 a barrel yesterday, the lowest price for a contract closest to expiration since June 5.

Oil prices have declined 2.7 percent this week on signs of falling demand in the U.S. The amount of petroleum products supplied from refiners fell for a third week to 19.9 million barrels a day last week, the lowest since January 2007. Crude stockpiles have dropped 7.3 percent in the past 10 weeks.

``Crude inventories are falling because refiners don't want to buy it at these high prices, not a shortage of supply,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago.

Nuclear Program

Iran says that its nuclear program is designed to produce electricity while the U.S. and Israel allege the country is seeking atomic weapons.

Iran, which produced about 3.85 million barrels of oil a day last month, has warned it may blockade the Strait of Hormuz, the export channel for a quarter of the world's crude, if it's attacked. The country has the second-biggest proved oil reserves and is the second-biggest producer in the Organization of Petroleum Exporting Countries.

``We all realize, both the Americans and us, that all options must be prepared,'' Israeli Lieutenant-General Gabi Ashkenazi said in an interview from Washington on Israel Radio. ``There is no doubt that diplomacy must be given priority.''

Iran wants to pursue negotiations with world powers over regional issues including the Persian Gulf nation's nuclear program, said Vice President Gholam Reza Aghazadeh, head of the country's Atomic Energy Organization, adding that dialogue will ease oil prices.

If substantive negotiations start, ``many important problems will be resolved: the problem of a stable Middle East, Afghanistan, Lebanon, Iraq and the problem of the high oil price,'' Aghazadeh said yesterday at a news conference at the International Atomic Energy Agency in Vienna. ``I'm very hopeful that this negotiation will be started.''

Brent crude oil for September settlement was at $126.47 a barrel, up 3 cents, on London's ICE Futures Europe exchange at 10 a.m. Singapore time. The contract rose $1.15, or 0.9 percent, to settle at $126.44 a barrel yesterday.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.