LONDON -- World oil prices dipped after setting a new record on Tuesday, reported Reuters, but potential supply disruptions and fears of a winter fuel crunch kept markets within sight of $60 a barrel.
U.S. light crude for July delivery settled down 47 cents at $58.90 a barrel, after setting a record high at $59.70, on the New York Mercantile Exchange (NYMEX). London Brent crude weakened 90 cents to finish down 82 cents at $57.50 a barrel on the International Petroleum Exchange.
"We are seeing a little bit of a pullback after yesterday's [image-nocss] strong push higher but there is no sign of any sustained weakness," said Christopher Bellew of London's Prudential Bache. "The market is well-supported by the strike threat in Norway and unrest in Nigeria, while demand is remarkably robust despite the high prices.
Fears of potential winter shortages have pushed speculators to buy into oil futures contracts for delivery later in the year, sending forward prices on crude, heating oil and London gas oil to record highs.
"A lot of the market today is being driven by the perception that, come next winter, there is a question if there is going to be adequate crude supply and adequate product availability, particularly in distillates," ExxonMobil CEO Lee Raymond told the Reuters Energy Summit in New York. "I'm not quite as pessimistic about that as the market would suggest," he added. "I think there is a risk premium in the market reflecting what people's view would be for the value of a barrel of oil if the world were short."
U.S. crude is trading at over $60 a barrel or higher for every month from November 2005 to February 2006.
"I think people are scratching their heads as to whether the world will accept $60 like it did $50," U.S. oil investor Boone Pickens told the Reuters Energy Summit. "You could go to $70, but at some point it's going to cost on the demand side."
U.S. diesel demand is running at more than 6% above year-ago levels, sparking fears refiners will be unable to build pre-winter stocks of heating oil.
"The complex remains extraordinarily sensitive to any possible problem that may hinder supply, said Fimat analyst Mark Fitzpatrick.
Average U.S. oil prices so far this year are up more than $10 a barrel despite almost maximum output by the Organization of Petroleum Exporting Countries (OPEC), which has repeatedly said refining capacity, not crude supply, is key to lowering prices. Markets were unimpressed by news on Monday OPEC will start consultations to boost oil supply by half-million bpd. This will merely add to crude stocks, already close to six-year highs.
"Our position is clear. We can increase production but America cannot produce gasoline; it has refinery shortages," a Saudi source told Reuters on Tuesday, referring to discussions between Secretary of State Condoleezza Rice and Saudi officials over the oil price.
A focus now is official U.S. data due today. Analysts polled by Reuters expect U.S. crude stocks to have fallen 1.7 million barrels on average last week while distillate inventories will have risen 1.7 million barrels and gasoline by 400,000 barrels.The approach to $60 a barrel has again stoked fears over oil's impact on world economic growth. Chinese central bank governor Zhou Xiaochuan told Reuters on Thursday while his country's economy would grow at a rate of more than 9% in 2005, he was keeping a close eye on the oil price. European Union officials also said on Monday an oil price above $50 posed a risk for the region's economic growth.