Oil takes breather amid recession fears
Agence France Presse
SINGAPORE - World oil took a breather on Monday from spiralling prices that prompted consumer nations to urge a production increase and warn of a global recession in the face of the 150 dollar barrel.
New York's main oil futures contract, light sweet crude for July delivery, eased 99 cents to 137.55 a barrel after making its biggest one-day jump ever on Friday. The contract spiked 10.75 dollars a barrel to close at a record 138.54.
Analysts and a key member of the OPEC producers' cartel warned crude could soon hit 150 dollars a barrel.
Also on Friday in intraday trade, the benchmark contract crossed 137, 138 and 139 dollars for the first time and soared to an all-time high of 139.12.
Brent North Sea crude for July dropped 1.41 dollars to 136.28 a barrel after smashing barriers Friday in London. Brent hit a new intraday high of 138.12 before it eased back to settle at a record 137.69, up 10.15 dollars.
Both futures contracts far exceeded their prior record highs set on May 22 -- 135.09 dollars in New York and 135.14 in London.
Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore, said the sharp jump in prices was a market overreaction to a confluence of factors.
"It is not surprising that there is a bit of a pullback after such a sharp increase. The increase in oil prices has nothing to do with supply and demand, and fundamentals did not change."
Crude oil leapt in reaction to a new decline in the US dollar after the European Central Bank on Thursday signalled an interest rate hike and the US reported a sharp rise in unemployment on Friday, analysts said.
A report by the US Labor Department showed that the US unemployment rate rose unexpectedly by a half percentage point to 5.5 percent in May, the steepest increase in more than two decades.
Asian stocks tumbled on Monday after the breathtaking surge in oil prices and the US unemployment numbers.
"Optimism about the US economy evaporated," driving investors into the oil market, Shum said.
The dollar was almost unchanged against the euro in Asia on Monday, trading at 1.5776 dollars for one euro in afternoon trade.
A weaker greenback boosts oil prices because it makes crude relatively cheaper for buyers using stronger currencies, analysts said.
Compounding the dollar squeeze were reported remarks about Iran's nuclear program by Israeli Deputy Prime Minister Shaul Mofaz. Analysts said the comments fanned fears of a Middle East conflict.
"If Iran continues its nuclear weapons program, we will attack it," Mofaz told the Yediot Aharonot daily in Israel, stressing that such an operation could only be conducted with US support.
"Other options are disappearing. The sanctions are not effective. There will be no alternative but to attack Iran in order to stop the Iranian nuclear program," Mofaz said.
On Sunday, Iran's representative to the OPEC oil cartel warned the price of crude oil is set to rise even further to 150 dollars a barrel by the end of summer.
Iran is the number two exporter in the Organization of the Petroleum Exporting Countries (OPEC).
On Friday, investment bank Morgan Stanley predicted that light sweet crude will hit 150 dollars by July 4 because of tight supplies.
Eleven nations that guzzle nearly two-thirds of the world's energy called Sunday for an urgent hike in global oil production.
Japan's energy minister Akira Amari, who hosted their meeting, warned the world could plunge into recession.
Australian Prime Minister Kevin Rudd said on Sunday that a summit next month by the Group of Eight industrialized nations "provides an opportunity to apply the blowtorch to the OPEC organization".
But Iranian Oil Minister Gholam Hossein Nozari has said the market is oversupplied with oil and a production increase would have no effect on prices.
Shum said the oil market "looks set for a choppy period in the near term".