OIL prices tumbled nearly US$4 a barrel yesterday, erasing many of last week's record gains in a single session as concerns about potential supply disruptions eased.
Light, sweet crude for August delivery fell US$3.92, or about 2.7 percent, to settle at US$141.37 on the New York Mercantile Exchange. Earlier, the contract sank as low as US$139.50, or US$5.79 below Thursday's settlement price. In London, August Brent crude fell US$2.55 to settle at US$141.87 a barrel on the ICE Futures exchange.
Traders drove prices sharply higher at the end of last week as they bet that conflict with Iran or some other event could cut supplies, and they didn't want to get caught unprepared over the long Independence Day weekend, analysts said. There was no floor trade Friday in the U.S. because of the July Fourth holiday.
As concerns about supply disruptions subsided, many traders on Monday sold off contracts they had bought as insurance last week.
"We got through the holiday without any major news," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "No news is good news, or in this case, no news is bearish news."
After the last few weeks' run-up, however, analysts were skeptical that the drop signaled the start of a long-term decline. Prices set records in each of the previous six sessions.
"We're just moving into a new and higher trading range" of about US$140 to US$146 a barrel, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois. "We'll probably consolidate there for a week or two ... then probably push back into new record territory."
In the US, the world's biggest energy consumer. record retail fuel prices edged even higher as Americans made their way home at the end of the long weekend, typically one of the busiest driving periods of the year.
A gallon of regular gasoline now costs US$4.108 (US$1.08 a liter), a tenth of a penny more than the previous day's high, according to AAA automobile club, the Oil Price Information Service and Wright Express. Diesel is also at a record, of US$4.801 a gallon (US$1.26 a liter), up nearly a penny.
Americans are now paying more than US$1 billion more for gasoline per day than they did five years ago, according to an OPIS report yesteday. In June, the world's largest oil consumer spent about US$47.38 billion on the motor fuel, nearly three times as much as in 2003.
Fred Rozell, retail pricing director at OPIS, said retail gas costs will likely continue to rise. He joined a number of analysts in predicting oil prices still have further to climb, and said that could push prices at the pump up by as much as 25 to 30 cents per gallon more before the end of summer.
"It doesn't look like there's anything that's going to drive (oil) prices down at this point, even reduced demand," Rozell said. "There's so much momentum with money going into commodities right now, it's going to continue to go up."
Fears that a fresh conflict in the Middle East could cut oil supplies eased over the weekend.
Javier Solana, the European Union foreign policy chief, said he received a letter from Iran on Friday responding to an offer of incentives meant to persuade Iran to halt enrichment. He also said he had a lengthy conversation with Iran's top nuclear negotiator, Saeed Jalili, that was "constructive in principle."
Iranian state media reported that Solana had agreed to talks in the second half of July, but the EU official could not confirm the accuracy of those reports. He did not rule out the possibility of a meeting, however.
Meanwhile, Tropical Storm Bertha was upgraded to become the first Atlantic hurricane this year. Fears that the storm might threaten oil and natural gas installations in the Gulf of Mexico subsided as the storm was expected to head far to the north.
Oil hit a trading record of US$145.85 on Thursday in New York before settling at a record close of US$145.29 a barrel.
A falling dollar has helped boost oil prices around 50 percent this year as investors often buy commodities such as oil as a hedge against inflation when the greenback weakens. Also, a struggling dollar makes oil less expensive to investors overseas.
The dollar fell marginally against the euro Monday.
In other Nymex trade, heating oil futures fell by 13.64 cents to settle at US$3.9696 a gallon while gasoline futures sank 8.83 cents to settle at US$3.4827 a gallon. Natural gas futures fell 60 cents to settle at 12.977 poer 1,000 cubic feet.