[oil and gas] significance of the chevron gulf tap

Oil and Gas [homepage sidebar permalink] reports oil futures slid Tuesday on a cooling of tensions with Iran and a significant deepwater find in the Gulf of Mexico. Mixed jobs report and high inventories of oil and gasoline - despite record demand levels - also dampened prices.

Light, sweet crude closed at $68.60 a barrel, down 59 cents, on Nymex. Wholesale gasoline was off 4 cents to $1.69 a gallon, and heating oil slipped 3 cents to $1.93 a gallon.

"Risk premium appears to be a thing of the past, and even real threats and real losses of production cannot overshadow what the market perceives as ample supply ahead of what is supposed to be softest demand period of the year," said Phil Flynn, an energy analyst with Alaron Trading in Chicago.

Chevron reported Monday on successful tests of a deepwater region in the Gulf of Mexico that could become the country's largest source of oil, The Wall Street Journal reported. Company officials estimate that the field, located 270 miles southwest of New Orleans, holds 3 billion to 15 billion barrels of natural gas and oil. Reserves in the U.S. could double if 15 billion barrels are discovered.

The announcement boosted share prices of Chevron and its partners Devon Energy and Statoil ASA Tuesday. Chevron's stock was last up 2.7% to $66.60, while Devon was soaring 12% to $71.85. Statoil was rising 2% to $28.07.

The discovery comes at a good time, because the energy markets have been on edge that there isn't enough oil to supply skyrocketing demand around the world. There is about 85 million barrels of oil consumed per day and only 2 millions barrels of spare capacity.

Oil prices have shot up the $70 range, thanks to booming demand in the U.S. and China, attacks on Nigerian oil installations, hurricane threats to gulf platforms and Iranian saber-rattling. Iran, the world's fourth-largest oil producer, has been of particular focus for energy traders because it has toyed with the idea of slashing crude exports to the West over its nuclear program.

Threats of sanctions may come to pass against Iran because it missed the U.N. deadline last Thursday to halt its nuclear program. Still, sanctions won't be imposed on Iran until the European Union's foreign policy chief meets with Iran's nuclear negotiator this week. Travel restrictions are among the punitive measures being discussed.

U.N. General Secretary Kofi Annan travelled to Tehran over the weekend, and European Union leaders are due to meet Iran's chief nuclear negotiator next week, according to wire service reports. Iran has said it is willing to discuss its uranium enrichment program but will not halt activities.

Sluggish job growth in the U.S. has also worried traders because it can portend reduced crude demand. Although companies added more jobs in August vs. July, it wasn't enough to outweigh minimal wage increases and longer hours, according to the U.S. Labor Department. The report, released Friday, gave bears ammunition that crude demand and prices may drop in the near future.

Energy prices rise and fall on hurricanes because they can barrel through the Gulf of Mexico, like Hurricanes Katrina and Rita did last year, and shut down as much as a quarter of the country's petroleum production. Even a year later, 12% of the area's oil output has not yet recovered.