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Oil steady but further gains seen amid supply concerns

Oil steady but further gains seen amid supply concerns

Oil traded Tuesday near the previous day's levels but analysts said it remained poised to move higher amid concerns over supplies, growing global demand and other geopolitical issues.
Light, sweet crude for July delivery was up 27 cents on the day at US$134.62 a barrel by noon in Europe in electronic trading on the New York Mercantile Exchage. Earlier, it had risen above US$135.
On Monday, crude futures pulled back from last week's record highs, falling US$4.19 to US$134.35 a barrel on the New York Mercantile Exchange, after the dollar strengthened and Saudi Arabia voiced willingness to meet any increase in demand.
"The market is taking a breather after the very sharp gain last week but it's undeniable we have a strong uptrend in the oil markets. The market is still prone to further price spike," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Shum said supplies could be hit if the current Atlantic hurricane season hurts production in the Gulf of Mexico. There are also still jitters over an Israeli cabinet minister's warning of an attack on Iran if it didn't halt its nuclear program, which sent oil prices sharply up Friday, he said.
That prospect appeared to dissipate over the weekend as Israeli Prime Minister Ehud Olmert distanced himself from the comments and other officials noted that the minister had not been expressing official government policy.
Still, "given the sharp gains we have seen, a further spike to the US$150 level is possible," Shum said.
The jump began Thursday after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation. That sent the dollar falling against the euro. Some investors buy commodities such as oil as a hedge against a weakening dollar.
Crude futures surged 8 percent Friday, touching an all-time high of $139.12 a barrel in after-hours trading.
Prices retreated Monday after the dollar improved against the euro on comments by Treasury Secretary Henry Paulson that he would not rule out intervention to stabilize the U.S. currency. In London, the euro traded at US$1.5506, down from US$1.5652 late Monday in New York.
Saudi Arabia also called for a meeting of oil-producing countries after saying the current price of oil was unjustified. A Saudi minister said the kingdom would work with OPEC to "guarantee the availability of oil supplies now and in the future."
Analyst and trader Stephen Schork, in his Schork Report, suggested those comments cooled the market and "encouraged bulls to lock in some of last week's dubious gains," but left the future direction of prices open adding: "Whether or not the selling continues remains to be seen."
In Paris, the International Energy Agency lowered its forecast for global oil demand this year amid surging prices, but said Tuesday that lagging supply was knocking markets out of kilter.
"Supply growth so far this year has been poor and higher prices are needed to choke off demand to balance the market," the Paris-based watchdog said in a monthly report.
The agency predicted global oil product demand in 2008 to grow by 0.9 percent, or 800,000 barrels a day, down from the 1.2 percent, or 1 million barrels, forecast earlier.
Other factors supporting oil prices included an explosion last week at a natural gas production facility in Australia, which boosted demand for diesel by that country's mining sector, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.
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.
Friday's sharp US$10.75 jump in oil prices had some of the hallmarks of a "blow-off top," Armstrong said, or a rapid, explosive run-up in prices that's followed by steep declines. Still, it's far to early to tell for sure.
"You never know you've been in a bubble until it's gone," Armstrong added.
In other Nymex trading, heating oil futures rose just over 2 cents to US$3.8989 a gallon (3.8 liters.) Gasoline prices were up less than a penny to US$3.4017 a gallon while natural gas futures held steady at US$12.609 per 1,000 cubic feet.
July Brent crude fell 63 cents to US$133.28 a barrel on London's ICE Futures Exchange.
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Associated Press writer Eileen Ng contributed to this report from Kuala Lumpur, Malaysia.


Updated : 2021-01-16 05:07 GMT+08:00