Oil prices were steady in Asian trading Wednesday on guarded optimism that the standoff between Iran and Britain would be resolved diplomatically.
Light, sweet crude for May delivery dipped 2 cents to US$64.62 a barrel in electronic trading on the New York Mercantile Exchange midmorning in Singapore.
Britain on Tuesday called for direct talks with Iran to resolve a dispute over 15 captive marines and sailors after its first contact with the chief Iranian negotiator. The announcement followed the sudden release of an Iranian diplomat in Iraq that raised new hope for resolving the standoff.
In a statement late Tuesday, Prime Minister Tony Blair's office said there had been "further contacts" between the two countries, including with chief international negotiator Ali Larijani.
"I expect that given the market tension just focused on the issue between Iran and Britain, as the heat gets out of the issue, prices will go down," said Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia in Sydney.
"I think the words have gotten a lot friendlier and so it looks like it's going to push off into a diplomatic thing and it will become less of an issue for the market as time goes by," he said.
The contract posted its biggest decline in nearly a month Tuesday to end US$1.30 lower at $64.64 a barrel. It was crude's second decline in the last 11 sessions and its biggest single day drop since March 5. Prices had risen steadily since the 15 Britons were detained March 23 by Iran for allegedly entering Iranian waters.
The fear that Iran could disrupt the oil trade had caused traders to add a risk premium in recent weeks. Iran is located along the Strait of Hormuz, through which tankers ship about 17 million barrels of crude oil a day, according to the U.S. Energy Information Administration. That accounts for two-fifths of the world's crude oil traded by tanker, and about one-fifth of total oil production.
The sell-off in crude came ahead of weekly U.S. government data released later Wednesday, and is expected to show a build in U.S. crude stocks.
Analysts surveyed by Dow Jones Newswires estimate that the report for the week ended March 30 will show a build of 1.7 million barrels in crude stocks, a draw of 1 million barrels in gasoline inventories and a decline of 700,000 barrels in distillate stocks, which include heating oil and diesel fuel.
In other Nymex trading, heating oil futures rose 0.17 cents to US$1.8404 a gallon (3.8 liters) while natural gas prices rose 1.7 cents to US$7.443 per 1,000 cubic feet.