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Jul 20, 2012, 12.07 PM IST
Brent crude held above USD 107 on Friday, edging lower after a surge of 20% in four weeks prompted some selling as worries about conflict in the Middle East eased slightly.
Oil rose to an eight-week high in the previous session, gaining for seven straight days as escalating tension in the Middle East and disruptions in output in the North Sea stoked supply fears. A strengthening of the dollar after a recent slide is also supporting crude futures.
Brent crude slipped 49 cents to USD 107.31 a barrel by 0543 GMT. The contract settled up USD 2.64 and touched an intraday top of USD 108.18, the highest since May 22.
US oil fell 76 cents to USD 91.90. The August contract ended up USD 2.79 and touched a high of USD 92.94, also the highest since May 22.
"Prices were getting stretched a little, getting a bit ahead of themselves," said Mark Pervan, senior commodities strategist at ANZ Bank. "This rally is supply driven, and supply-driven rallies tend to be very volatile because when prices go up, they threaten to hurt demand."
Brent is set to gain for a fourth straight week, its longest winning streak since the end of February, while US oil is poised to gain for three of the past four weeks.
The most important supply threat to oil for now is from the Middle East, as global powers try to force Iran to halt its disputed nuclear programme. Tension escalated after a bus carrying Israeli tourists was bombed in Bulgaria, for which Israel blamed Iran.
Israel's allegation, based on suspicions that Iranian and Hezbollah agents have been trying for years to score a lethal strike on its interests abroad, triggered speculation in local media that the government might now hit back hard. Israel however said it would rush into any conflict.
The Middle East supply worries will limit any further slide in prices.
Apart these tensions, expectations that the US Federal Reserve would announce another round of stimulus to boost growth may weaken the dollar, boosting oil and other dollar-denominated commodities.
"Middle East tensions now mean that supply concerns are entering the crude oil equation which is creating an upward price pressure," Tim Waterer, senior trader at CMC Market, said in a report.
"With the added element of potential QE3 keeping a lid on the dollar, it would appear that the recent rally in oil still has room to move on the upside with a return to USD 100 per barrel now a realistic proposition."
North Sea production problems, including the recent strike in Norway, are the other key supply worry. Nexen Inc
Nexen said production at the 200,000 barrel a day oil field would stop during the work, and is expected to be back at full rates by the middle of October.
Brent will retrace to USD 106.29 per barrel as it did not break a resistance zone of USD 107.78-108.31, while US oil will retrace to USD 91.30 per barrel, according to Reuters technical analyst Wang Tao.
Yet worries about demand growth continue to put a ceiling on oil prices. The global economy will labour against a dismal tide from recession-hit Europe for the rest of this year, according to Reuters polls of hundreds of economists worldwide.
The global economy will grow around 3.2% in 2012 and 3.7% next year, the poll showed, a slight downgrade from April's poll and slower than the International Monetary Fund's reading of 3.9% for 2011.
Tags: Brent crude, US oil, US Federal Reserve, Middle East, supply worries, QE3, International Monetary Fund
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