Saturday, 30 August 2008 |
19:11 UAE time
Oil dropped below $144 a barrel on Friday, but was still within sight of record highs reached in the previous session when traders bought into the market ahead of a holiday weekend in the United States.
US crude oil was down $1.44 at $143.85 a barrel by 1700 GMT, below an all-time high of $145.85 hit on Thursday. The contract has risen more than 50 percent this year. London Brent was down $1.66 at $144.42.
Prices fell more than a dollar after Iran said it would make a response later on Friday to proposals from six world powers to try to resolve a long-running dispute over its nuclear development programme.
Iran subsequently handed its response to European Union foreign policy chief Javier Solana, but did not give any details about its content.
The United States, China, Russia, Germany, Britain and France have offered trade and other incentives to Iran, which is facing sanctions because it has refused to give up its nuclear programme.
Investors had rushed into crude oil ahead of the US independence day holiday on July 4, because they were wary of any escalation in tensions between Iran and Israel that have contributed to oil's rise to a record of $145.85 this week.
Oil has gained about 50 percent this year, driven partly by the tensions over Iran's nuclear programme, plus expectations that global oil supplies will not cope in the long term with strong demand growth from newly industrialising China and India.
The price spike has caused fuel protests worldwide and has begun to dampen demand in consuming nations, including the United States, the world's biggest energy consumer.
The next milestone is $150 a barrel, which some analysts had predicted the market could reach by July 4.
"It's going to go higher before it goes lower," said Christopher Bellew, of Bache Financial.
"Two trains are rushing towards each other. One is... rallying oil prices and the other is economic recession. At some point they're going to collide."
Investment flows into oil have contributed to the price surge, encouraged by commodities' strong returns this year versus a feeble showing from equities.
"I think the current market is driven by speculative money, not by fundamentals," said Takeda Makoto, an analyst at Bansei Securities.
The weak US dollar has also played a part in boosting oil, which is priced in the US currency.
The dollar drew some support on Friday after European Central Bank President Jean-Claude Trichet appeared to play down chances of further interest rate rises. (Reuters)
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