Trading Pace Slows : Oil Prices Dip Despite Uneasiness in the Gulf

NEW YORK —  Oil prices have settled just below $22 per barrel in a market still transfixed by the crisis in the Middle East.

Contracts for September delivery of West Texas Intermediate, the benchmark U.S. crude oil, dropped 19 cents to $21.97 per 42-gallon barrel Tuesday, after shooting up 79 cents in the previous session.

“Prices are still holding at critical levels,” said Michael Himmel, an analyst with the Shearson Lehman Bros. investment firm in New York.

The contract traded in a narrow range between a low of $21.81 and a high of $22.16 per barrel during Tuesday’s session. Trading was described as light and dominated by speculators grabbing profit from Monday’s price surge.

Uneasiness about the Mideast continued to drive other markets, as well. Stocks moved lower; gold advanced, and the dollar’s value firmed against most major currencies--all largely in response to the high anxiety about the Persian Gulf.

The price of near-term oil contracts have traded over $20 per barrel--at times shooting above $22--since U.S. officials disclosed plans last month to protect Kuwaiti oil tankers moving through the Persian Gulf.

The United States has pledged to keep the waterway open to oil traffic despite the war between Iran and Iraq. The first ship to be escorted, the Bridgeton, was damaged by a mine and has yet to return to service. A second, the Gas Prince, negotiated the gulf’s narrow Strait of Hormuz without incident Monday.

Although Tuesday’s atmosphere was relatively relaxed, analysts said oil traders were still walking an emotional tightrope, expecting the Mideast crisis to erupt at any time and interrupt the flow of oil through the Gulf.

“The market is going to explode on the upside on any news coming out of the Middle East, and it will have a tendency to settle off in absence of such news,” said analyst Himmel.

The September contract for unleaded gasoline settled 0.02 cent lower Tuesday at 55.92 cents per gallon, while the near-term contract for No. 2 heating oil skidded 0.55 cent to 56.40 cents per gallon.

The oil market vented a fury of nervous energy Monday in the wake of bloody clashes over the weekend between Iranian pilgrims and Saudi Arabian security forces in the holy city of Mecca. The confrontation resulted in hundreds of Iranian casualties, aggravating tensions within the Arab world and prompting renewed anti-American threats from Iranian officials.

Iran also launched three days of military exercises designed to demonstrate its readiness to carry out suicide missions against the U.S. Navy in the Gulf.

Although the Pentagon downplayed the significance of those maneuvers, several officials said it was unlikely the next convoy would sail before next week.