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Oil prices retreated as investors took profits

Oil prices retreated as investors took profits

Crude oil futures retreated on Monday as investors sold to lock in profits from the previous session's record run-up. Traders predicted continued volatility amid supply worries, growing global demand and weakness in the U.S. dollar.
Light, sweet crude for July delivery fell $2.74 to $135.80 a barrel in volatile trading on the New York Mercantile Exchange, easing back from a nearly $11 per barrel spike on Friday predicated on a number of political and supply concerns.
Crude futures made their biggest single-day jump ever Friday, soaring nearly US$11 for the day to US$138.54 a barrel, a rise of more than 8 percent that battered stocks on Wall Street. That came after an increase Thursday of almost US$5.50, taking oil futures more than 13 percent higher in just two days, easily a record on the Nymex.
"There's some profit taking going on, which is understandable after that sort of move," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.
In London, July Brent crude fell $2.94 to $134.75 a barrel on the ICE Futures exchange.
"We're likely to see some pullback ... and a choppy period of ups and downs," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
"We're not going to see a substantial reduction in demand," he said. "Supply side concerns will continue to support pricing."
One of the factors that underpinned Friday's rally _ an Israeli cabinet minister's comment that his nation might attack Iran if it did not halt its nuclear program _ appeared to dissipate over the weekend as Israeli Prime Minister Ehud Olmert distanced himself from the comments and other officials noted that the minister, Transportation Minister Shaul Mofaz, had not been expressing official government policy.
But other factors support high oil prices. An explosion last week at a natural gas production facility in Australia has boosted demand for diesel by that country's mining sector, Armstrong said. In Nigeria, a major U.S. oil supplier, a strike later this week could take 450,000 barrels in daily oil supplies off the market, Armstrong said. Both events highlight how tight oil supplies are.
The upward swing in crude began Thursday, after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation.
"Trichet has managed what no war, no hurricanes, no OPEC has ever managed to do," analyst Olivier Jakob from Petromatrix in Switzerland said in a research report. Trichet's statements "shocked the financial system," Jakob said, and sent the dollar falling against the euro.
Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens. On Monday, the effect reversed; the dollar gained ground, making oil less effective as an inflation hedge. Also, a stronger dollar makes oil more expensive to investors overseas.
The gains in crude have pulled gasoline prices up sharply worldwide. Even so, there have been few signs of weakening global demand for crude oil, despite the economic slowdown in the U.S. and recent moves by India, Malaysia and other Asian countries to raise gasoline prices after they cut subsidies.
It will take some months to see if there a decline in demand, Shum said. "As we go deeper into U.S. summer driving season, we may see demand drop, and that could help pull back pricing."
But he pointed out that in China, a huge oil consumer, authorities have refrained from raising state-set retail prices in recent months, suggesting that demand there may not be affected.
In the U.S., retail gasoline prices continued their climb, with the national average for a gallon of regular gas rising 1.8 cents overnight to a record $4.023, according to the American Automobile Association and the Oil Price Information Service. Prices first moved above $4 nationally on Sunday, though they have been higher than that in many parts of the U.S. for weeks.
Some analysts see warning signs in Friday's bold oil price jump.
The $10.75 per barrel move had some of the hallmarks of a "blow-off top," Armstrong said, or a rapid, explosive run-up in prices that is followed by steep declines. Still, it is far to early to tell for sure, he added.
"You never know you've been in a bubble until it's gone," Armstrong said.
In other Nymex trading Monday, July gasoline futures fell 10.75 cents to $3.4404 a gallon, and July heating oil futures fell 6 cents to $3.914 a gallon. July natural gas futures rose 1.6 cents to $12.709 per 1,000 cubic feet.
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Associated Press Writer John Wilen in New York and Pablo Gorondi in Budapest, Hungary, and AP Business Writer Malcolm Foster in Bangkok, Thailand, contributed to this report.


Updated : 2021-04-13 16:34 GMT+08:00