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Oil prices slipped Thursday after jumping to a record near $124 a barrel in the previous session as investors captivated by the market's upward momentum seemed to ignore figures showing an increase in U.S. crude and gasoline supplies.Analysts had no clear answer for what prompted the continuation of the surge that pushed prices past US$120 for the first time earlier this week.
The fact that prices did not decline sharply after the weekly U.S. inventory report signaled to some investors that the market was ripe for another rally.
"The bulls are in control and there's a lot of momentum driving the oil price up," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "Participants now tend to focus on only the bullish elements of the news out there."
Light, sweet crude for June delivery fell 38 cents to $123.15 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.69 on Wednesday to a record finish of $123.53 a barrel.
It later jumped to a new high of $123.93 a barrel in the electronic trading after the Nymex floor session.
On the heels of the most recent rally, Iran's oil minister predicted that prices would rise even more — up to $200 per barrel in the near future — in comments reported by the official IRNA news agency.
"The time when the price of oil is $200 a barrel is not far," IRNA quoted Gholam Hossein Nozari as saying.
He attributed the rise in oil so far partly to difficulties in production in Nigeria and said it was also the result of the dollar's weakening against other currencies.
"In fact oil has not been expensive, the dollar has been weak," he said.
Iran is OPEC's second-largest producer.
Oil prices at first waffled on Wednesday as traders were torn between relief that crude and gasoline supplies are rising and worries about rising demand and falling distillate stockpiles.
"Another example of ... zeroing in on the bullish news is this inventory report out of the U.S.," Shum said.
The Energy Department's Energy Information Administration said in a weekly report that inventories of distillate fuels, which include diesel and heating oil, fell unexpectedly while gasoline demand rose slightly last week. Traders chose to focus on those numbers and shrug off crude inventories, which rose much more than analysts predicted, and gasoline supplies, which increased when expected to decline.
Some evidence that investors were buying simply to keep up with the market's momentum came from the fact that a stronger dollar has had little or no impact on trading.
"The trading mantra that we observed the last few months between the movement of the U.S. dollar and oil price movements appears not to hold water the last few days," Shum said.
The dollar's protracted decline against the euro and other foreign currencies since the middle of last year has played a major role in oil's rise by attracting investors looking for a hedge against inflation.
When the dollar reverses course and strengthens, the effect usually reverses, sending oil prices lower — but not recently, as Shum noted.
In currency trading Thursday in Asia, the dollar has continued to climb against the euro, which at one point fell to $1.5285, its lowest level since March 11.
"Clearly the current spike in oil prices has been sharp and furious and with little in the way of fresh impetus and lack of supporting fundamentals a retracement must surely be on the cards," said Paul J. Harris, head of natural resources risk management at the Bank of Ireland Global Markets.
"That said, in current conditions it is difficult to call exactly when the bearish elements will prevail. More importantly, the key issue is how far that pullback will be, with oil prices below $100 ... (a barrel) at this stage a dim and distant memory."
In other Nymex trading, June heating oil futures rose by less than a cent to $3.445 a gallon and gasoline was essentially flat at $3.1193 a gallon. Natural gas futures rose by nearly 7 pennies to $11.396 per 1,000 cubic feet.
In London, June Brent crude futures fell 30 cents to $122.02 a barrel on the ICE Futures exchange.
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AP Business Writer Thomas Hogue contributed to this report from Bangkok, Thailand
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