Cause and effect

From AP-

Oil prices dropped Monday after the Saudi oil minister said OPEC wanted to avoid fluctuating prices and as U.S. Secretary of State Condoleezza Rice traveled to the Mideast to try to find a diplomatic solution to the violence in Lebanon and Israel.

Rice met with Lebanese Prime Minister Fuad Saniora in a visit intended to make a show of support and concern for both the government and the Lebanese people, administration officials said. She also plans meetings in Jerusalem and the West Bank with Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas.

Prices will be dependent upon the progress of these talks, said Paul Harris, head of energy and emissions at Bank of Ireland Global Markets in Dublin.

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Light, sweet crude for September delivery was down 83 cents to $73.60 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe.

September Brent on London's ICE Futures exchange fell 69 cents to $73.06 per barrel.

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The sudden eruption of fighting between Israel and Hezbollah militants in Lebanon on July 12 lifted crude futures to a record $78.40 two days later on fears that the violence would escalate into a regional war and disrupt supplies, particularly from Iran, OPEC's No. 2 supplier and a backer of Hezbollah. The violence has killed hundreds in Lebanon and dozens in Israel.

While oil prices have receded from recent highs after data showed that U.S. petroleum inventories grew across the board last week, worries about the Middle East crisis linger, although the market seems relieved that the conflict is not spreading.

Natural gas futures rose 12 cents to $6.260 while heating oil futures fell more than 2 cents to $1.9355 a gallon. Gasoline futures dropped more than a cent to $2.2750.

If oil prices were to rise another $10 or $15 a barrel, there would be "significant consequences" for the U.S. economy, he added. He said high energy prices are already hurting the economy, "in terms of real activity and in terms of inflation."

I am sure any further large spikes in energy prices will effect the US economy. So far inflation has been minimal despite the rise in gasoline prices. I just don't think that can continue forever.

Is there really a correlation between Rice's visit and a drop in Oil Prices like the headline says? There has been Middle East tension as long as OPEC existed. It ebbs and flows, but there have been other periods of uncertainty. The first Iraq war, The Iraq-Iran conflict and the attacks on Gulf traffic, The fall of the Shah, Israel's original incursion into Lebanon. I just wonder how much current events are really driving oil prices?

Could it just be speculators driving the current swing in oil prices? Being a Star Trek fan I remember two of the Ferengi Rules of Acquisition.

#34- Peace is good for business.
#35- War is good for business.

Somehow I think business as usual may be playing as much a part in oil prices as Dr. Rice's visit is. If not more so.

Hat tip- James Joyner at OTB
Open Post- Right Wing Nation, Cao's Blog, Third World County,