Crude falls nearly $2 after U.S. says it will join multilateral talks if Iran suspends nuclear enrichment program.

May 31, 2006: 10:46 AM EDT


NEW YORK (Reuters) - Crude futures fell nearly $2 Wednesday morning after officials said the U.S. will engage in multilateral talks with Iran if Tehran suspends its nuclear enrichment.

"The State Department saying it wanted to join the multiparty talks on Iran helped push crude lower," said John Kilduff, senior vice president at Fimat USA.


Also, expectations that OPEC will keep pumping oil near full capacity and for U.S. inventory data due out Thursday to show another build in gasoline stocks undermined prices.

The expiration at the end of the session of the front-month June contracts for gasoline and heating oil fueled the selling.

Light, sweet crude for July delivery fell $1.83 at $70.20 a barrel after dropping to an early low of $70.10 on the New York Mercantile Exchange.

In London, July Brent crude fell $1.06 to $69.99.

NYMEX June gasoline slumped 5.99 cents to $2.09 per gallon, after settling at $2.3347 Tuesday.

June heating oil slid 2.69 cents to $1.977 a gallon.

"Crude and products futures have fallen in light overnight trade as traders anticipate bearish U.S. inventory stats and a status quo result from the OPEC meeting," said Addison Armstrong, manager of exchange traded markets at TFS Energy.

The Organization of the Petroleum Exporting Countries will meet Thursday in Caracas to chart output policy, and ministers have made clear they expect to leave supply quotas unchanged.

But they also admit the cartel has less power in a market dominated by a global shortfall in refining capacity and geopolitical worries.

"OPEC is becoming an audience," said Qatari Oil Minister Abdullah al-Attiyah.

Dealers will be watching U.S. petroleum storage data on Thursday, with gasoline stockpiles expected to have risen by 1.4 million barrels last week, a fifth consecutive build, a preliminary Reuters poll of analysts showed.

The Energy Information Administration data will be released a day later than usual due to Monday's Memorial Day holiday.

Crude stocks were forecast down 200,000 barrels, with distillates up 1.5 million barrels. Refinery runs were projected to rise 0.8 percentage point to 90.5 percent of capacity.

Also on Thursday, the five U.N. Security Council permanent members and Germany will meet in Vienna to discuss a package of incentives for Iran to halt its restarted nuclear program along with penalties if it keeps defying international pressure.