Oil prices on Thursday fell 1.2 percent, or more than $1.60 a barrel, reversing some of the previous session's gains that had taken crude close to last week's record peak, as a steep drop in US inventories heightened supply concerns.
US crude prices fell $1.58 to $134.80 a barrel by 7:18am GMT, after surging $5.07 to $136.38 a barrel in the previous session to be within reach of last week's record above $139. London Brent crude dropped $1.44 cents to $133.58 a barrel.
"The market rose a lot last night, and I suspect that this drop is a short-term correction," said David Moore, a commodity analyst at the Commonwealth Bank of Australia in Sydney.
But analysts said a weak US dollar and supply flow disruptions in OPEC-member Nigeria continue to keep oil firmly supported.
"The weakness of the US dollar is a very important factor, and hedge funds are using this as an indicator to keep money in energy and commodities," said Takeda Makoto, an analyst at Bansei Securities.
Swelling demand from China and other developing countries has boosted oil prices more than 42 percent this year, pressuring major consumers, such as the US, which are struggling to cope with a housing slowdown and credit crunch.
Representatives of the world's biggest oil consumer and producer nations will meet in Saudi Arabia on June 22 to discuss soaring oil prices, which producer group OPEC says are due to speculation, not a lack of supply.
But Venezuela's Energy Minister, Rafael Ramirez, said no decision would be taken at the meeting on production levels.
On Wednesday, the US Energy Information Administration reported that crude stockpiles dropped 4.6 million barrels last week, the fourth consecutive weekly decline amid soft import levels, and the biggest drop since early May.
Dealers said a decline in the US dollar on Wednesday also encouraged buying. The weak dollar in recent months has drawn billions of dollars into commodity markets as investors seek a hedge against inflation.
Oil prices got a shot in the arm from news that Shell was extending its force majeure on oil shipments from Nigeria through July following a spate of rebel attacks on facilities earlier this spring.
Industry experts also pointed to figures from China showing a 25 percent year-on-year increase in oil imports last month, reflecting stockpiling ahead of the Beijing Olympics in August and increased demand for fuel after recent earthquakes. (Reuters)
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