Oil near $108 as weak demand picture offsets Iran

[February 28, 2012]  BANGKOK (AP) -- Oil prices fell slightly Tuesday in Asia as a weak demand picture offset fears of a potential supply disruption should tensions explode between the West and Iran over its nuclear program.

Benchmark oil for April delivery was down 6 cents to $108.50 at late afternoon Bangkok time in electronic trading on the New York Mercantile Exchange. The contract fell by $1.21 to $108.56 per barrel in New York on Monday.

Brent crude was down 57 cents to $123.60 per barrel in London.

Western nations fear that Iran is building a nuclear weapon and have been trying to get international inspectors into its facilities. Iran denies the claim and has threatened to disrupt oil supplies in response to any threats.

Despite those headwinds, some analysts said crude prices should weaken because Iran was unlikely to make good on its threat to block the Strait of Hormuz, through which one-fifth of the world's oil tankers pass each day. Another factor -- the ongoing economic fragility in Europe -- will reduce future demand and help rein in price hikes.

"We therefore continue to expect oil prices to drop back sharply this year as weakening demand more than offsets concerns over Iran, which are likely to fade too," analysts at Capital Economics said in a report.

The possible release of oil by the International Energy Agency or the U.S. could also help drive prices down, it said. The IEA embarked on a similar release of emergency crude stocks in June 2011 to ease the strain of high oil prices on the global economy.

"Either way, assuming a larger and earlier stock release than in 2011, the price of Brent crude could then quickly fall by as much as $10 per barrel," the report said.

In other energy trading, heating oil fell 1 cent to $3.27 per gallon and gasoline futures were steady at $3.30 per gallon. Natural gas was unchanged at $2.45 per 1,000 cubic feet.

[Associated Press; By PAMELA SAMPSON]

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