June 8 (Bloomberg) -- Crude oil fell below $70 a barrel in New York after Abu Musab al-Zarqawi, leader of al-Qaeda in Iraq, was killed, prompting speculation the attacks and sabotage that have strangled Iraqi oil exports will ease.
Al-Zarqawi was killed by a U.S. air strike north of Baghdad, Iraqi Prime Minister Nuri al-Maliki and U.S. General George Casey said at a Baghdad press conference. The insurgency al-Zarqawi led helped cut Iraqi oil exports by 200,000 barrels a day from their level before the U.S. invasion in 2003. Pipeline bombings slashed shipments through Turkey and disrupted Persian Gulf exports.
``The death of al-Zarqawi is being interpreted as a sign that Iraqi production has a better chance of increasing,'' said Deborah White, a commodities economist at Societe Generale in Paris. Al-Qaeda ``will be less effective, therefore sabotage will decrease.''
Crude oil for July delivery fell as low as $69.54 a barrel in New York Mercantile Exchange electronic trading. Futures fell 77 cents, or 1.1 percent, to $70.05 a barrel at 9:25 a.m. in New York. Brent crude oil for July fell 64 cents to $68.55 a barrel on the ICE Futures exchange in London.
Prices started falling two days ago as Iran weighed a European Union proposal to curb its nuclear research. A U.S. report yesterday that crude oil and gasoline stockpiles were increasing caused the decline to accelerate.
After al-Zarqawi was killed, prices fell further as a Nigerian militant group, the Movement for the Emancipation of the Niger Delta, said it would release five South Korean oil workers it took hostage yesterday. MEND said it decided to free the hostages after an appeal by Mujahid Dokubo Asari, a jailed militia leader.
Iraq's Most Wanted
Al-Zarqawi, a Jordanian, was the most wanted man in Iraq. He had taken responsibility for bombings, kidnappings and beheadings across the country since the U.S.-led invasion in March 2003.
``This is a message to all those who take violence as a path, to reconsider and to go back to their senses before it is too late,'' al-Maliki said at the press conference.
Iraq, the site of the world's third-largest oil reserves, has seen its exports fall to less than 1.5 million barrels a day, compared with 1.7 million a day in February 2003, the month before the invasion. Attacks on pipelines and other facilities, as well as high winds and rough seas at Iraq's Persian Gulf terminals, have slowed the flow of oil.
The U.S. Energy Department reported yesterday the country's oil and gasoline stockpiles were rising. Crude oil supplies unexpectedly grew last week as imports surged to a 10-month high and gasoline demand eased, the department said in its weekly inventory report.
U.S. crude-oil supplies rose 1.1 million barrels to 346.6 million, 4.2 percent higher than a year earlier. Analysts surveyed by Bloomberg News forecast a decline of 500,000 barrels. Imports climbed an average 39,000 barrels a day to 10.9 million, the highest since the week ended Aug. 5, the department said.
Gasoline supplies rose for a sixth straight week, gaining 1.1 million barrels to 210.3 million barrels in the period ended June 2. An increase of 1.5 million barrels was expected, based on the median forecast from a Bloomberg News survey of 17 analysts.
Implied daily gasoline demand was 9.37 million barrels a day, down 0.7 percent from a nine-month high the week before. Demand the past four weeks averaged 9.3 million barrels, up 0.7 percent from a year earlier, the department said.
Gasoline for July delivery declined 3.04 cents, or 1.4 percent, to $2.0936 a gallon in after-hours trading. It fell 5.48 cents, or 2.5 percent, to $2.124 yesterday.
Iran began considering a European Union proposal to curb its nuclear research two days ago. Today, Iranian President Mahmoud Ahmadinejad said the Islamic Republic was prepared to enter talks with the U.S. and its allies, the Associated Press reported.
The EU gave Iran until the end of the month to accept its package of trade, diplomatic and technology incentives in return for halting uranium enrichment, Agence France-Presse reported, citing a western diplomat it didn't identify.
``We are going to carefully study them,'' Foreign Minister Manouchehr Mottaki said yesterday, according to a statement on the official IRNA news agency. ``We prefer cooperation to confrontation.''
Enrichment of uranium is a necessary step to produce fuel for a nuclear power plant and for building an atomic bomb. The U.S. says Iran is trying to build a nuclear weapon, in violation of an international treaty. Iran insists its nuclear program is for civilian energy use.
Crude output by the Organization of Petroleum Exporting Countries, which pumps 40 percent of the world's oil, rose 0.4 percent in May to 29.78 million barrels a day, according to a Bloomberg News survey of oil companies, producers and analysts. OPEC members pumped 30.54 million barrels a day in October 2004, the highest since 1979.