OIL prices slumped US$3 yesterday on profit-taking, tracking losses in natural gas after a surprisingly big inventory build.
US crude fell US$3.00 to US$121.22 per barrel at 1707 GMT after hitting as high as US$126.64 earlier in the day. Trade for London Brent crude was interrupted by a technical glitch on the InterContinental Exchange platform.
The losses came as natural gas futures dropped two percent after a government report showed a larger-than-expected increase in stockpiles last week.
"Natural gas gave us a negative tone at the start of the day. There's also likely a lot of people trying to get out of positions and lock in some profits," said Phil Flynn, analyst at Alaron Trading in Chicago.
The losses add to oil's US$1.58 retreat Wednesday after US government data that showed a bigger-than-expected rise last week in distillate stocks.
The data eased concern about a tightening distillates market that has sent heating oil and gas oil futures to record highs this week.
Oil prices, which also hit a record this week just below US$127 a barrel, are about six times higher than they were in 2002, propelled by surging demand in China and other developing nations.
Mitigating oil's losses Thursday, the dollar weakened against the euro after data showing US industrial production fell 0.7 percent in April, reflecting the biggest drop in the manufacturing sector since September 2005.
Oil and the US currency have become closely intertwined in recent months as investors have turned to oil as a hedge against the falling dollar.
SAUDI VIEW
OPEC has rebuffed repeated calls from consumer countries to increase output, and has pointed to the weak dollar and speculative inflows into commodities as reasons for high prices.
Oil's rise has more to do with financial market volatility than fundamentals, Saudi Oil Minister Ali al-Naimi said on Thursday, according to the text of a speech obtained by Reuters.
"The short-term oil price gyrations seen in recent years are more closely tied to the internal logic of the financial markets than to underlying supply/demand fundamentals," Naimi said.
OPEC's Monthly Oil Market Report provided more evidence that record oil prices are slowing demand growth.
The exporter group trimmed its forecast for the increase in world oil demand in 2008 to 1.16 million barrels per day, 40,000 bpd less than its previous forecast.
Investment bank UBS raised its projection for oil prices on Thursday. The bank's oil economist Jan Stuart raised its 2008 US crude forecast to US$115 a barrel.
The forecast for this year is the most bullish among banks polled by Reuters. UBS previously was the most bearish forecaster in the poll last updated on April 25.