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Oil slips 0.5 pct after record $11 surge to new high PDF Print E-mail
Tuesday, 10 June 2008

Singapore, June 09 ( - Oil edged lower on Monday after its biggest surge ever, as OPEC's resistance to pumping more crude kept prices near their record high from Friday, when the falling dollar and Middle East jitters fuelled an unprecedented $11 jump.

U.S. light, sweet crude for July delivery fell as much as $1.42, or over 1 percent, to $137.12 a barrel in opening trade, but stood at $137.79 by 2319 GMT (7:19 p.m. EDT on Sunday), down 75 cents.

The contract surged $10.75 or 8.4 percent on Friday, hitting a new record of $139.12 a barrel amid a buying frenzy triggered by the slumping dollar and comments by an Israeli minister about a possible attack on Iran, the world's fourth-largest producer.

A forecast by investment bank Morgan Stanley that oil prices could top $150 a barrel by the July 4 U.S. holiday added to Friday's speculative fever, taking two-day gains to more than $16 a barrel and reversing two weeks of losses.

Oil's six-year-long rally has gathered pace this year, with prices rising about 40 percent since January as funds hedge against the dollar and some bet that long-term oil supplies will struggle to keep up with demand in the decades ahead.

"What's driving this ultimately is compound consumption. You can't put 40 million cars a year on the road and think we're going to consume less," said Greg Smith, who manages $500 million in futures as the head of fund Global Commodities in Australia.

At the weekend, key OPEC officials maintained they saw no need to consider pumping more oil now, despite the surge.

"I think there is enough oil in the market, I did not hear anybody calling for a meeting," Shokri Ghanem, head of Libya's National Oil Corporation and the country's top oil official, told Reuters in an interview.

OPEC, supplier of more than a third of the world's oil, is next scheduled to meet on September 9 to discuss oil policy.

Saudi Oil Minister Ali al-Naimi and his Pakistani counterpart agreed in a meeting on Sunday that oil's surge was not linked to fundamentals, the Saudi Press Agency reported.

While consumer nations have often urged the cartel to tame prices by pumping more crude, Group of Eight energy ministers meeting in Japan at the weekend focused on domestic efficiency and technology as the long-term solution to record oil, refraining from a call to pump more crude now.

Further support last Friday came from remarks by Israel's transport minister that an attack on Iran's nuclear sites looked "unavoidable." It was the most explicit threat yet against Tehran from Prime Minister Ehud Olmert's government.

The comments by Shaul Mofaz sparked criticism from defense officials and political pundits, who said they may be related to a power struggle in the centrist Kadima party as Prime Minister Ehud Olmert fights a bribery scandal.


Oil's latest boom has heightened the risk to economic growth in major consumer countries including the United States, whose economy already is hobbled by a housing crisis.

U.S. oil demand is also in decline as high prices bite, but many traders have focused instead on the falling greenback, which extended losses on Friday on data showing the U.S. economy lost jobs for the fifth straight month and the unemployment rate shot up to its highest in more than three years.

Some analysts say that the market may be overlooking the subtle erosion in oil demand, which may not become more visible until later this year, setting prices up for a sharp pull-back.

"Until Q4, there certainly appears to be additional spike risk in an impatient market. But when the data becomes available, the price action could be as sharp on the way down as on the way up," analysts at Lehman Brothers said in a report.

Asian growth maybe hit soon as governments from Indonesia to India cut fuel subsidies, while U.S. consumers are being forced to bear record costs.

In the world's biggest consumer, whose gasoline use alone accounts for over a tenth of the world's oil demand, the average retail gasoline price topped $4 a gallon for the first time, a survey by the AAA travel group showed on Sunday.

The International Energy Agency (IEA), an adviser to 27 industrialized countries, said it may cut its 2008 demand growth projection further after having already more than halved it to 1.03 million barrels per day (bpd).

Some warned of worse to come.

"I think it will go higher," said Ghanem, who is also head of Libya's OPEC delegation. "The easy, cheap oil is over, peak oil is looming."
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