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Oil prices drop on imminent release of British sailors

Oil prices dropped Thursday as Iran's announcement that it would free 15 detained British sailors helped to ease fears about a disruption in oil supplies.

Light, sweet crude for May delivery fell 13 cents to US$64.25 a barrel in midmorning Asian electronic trading on the New York Mercantile Exchange. This followed a drop of 26 cents the day before.

But traders have only shaved off part of the nearly US$5 premium they added to crude futures after the sailors were detained on March 23 when Iran said they entered its waters. Iran is located along the Strait of Hormuz, a key channel through which many oil tankers pass.

Concerns about tight U.S. domestic supplies offset much of the relief over the Britons' release. A weekly report released Wednesday by the U.S. Energy Information Administration showed that gasoline inventories declined for the eighth straight week and that demand is still strong.

U.S. crude oil inventories rose by 4.3 million barrels to 332.7 million barrels last week, according to the report, while gasoline inventories dropped 5 million barrels to 205.2 million barrels. The drop was much larger than the market had anticipated, and pushed gasoline inventories into the lower half of their average range for this time of year.

Inventories of distillates, which include heating oil, were unchanged at 118 million barrels.

Refineries operated at 87 percent of capacity for the second straight week.

Over the last four weeks, gasoline demand has averaged nearly 9.3 million barrels per day, the EIA said, which is 1.7 percent above the same period last year.

In other Nymex trading, heating oil futures dropped 0.34 cent to US$1.8610 a gallon, while natural gas prices rose 0.7 cent to US$7.522 per 1,000 cubic feet.