ET:Brent crude slips below $125 but supply concerns support
SINGAPORE: Brent crude slipped below $125 on Monday and snapped five days of gains with investors booking profits after prices surged to 10-month highs due to concerns over supply disruption as tension rose over Iran's disputed nuclear programme.
Brent's February rise of over 12 percent, on top of the previous month's increase of more than 3 percent, pulled down Asian shares, base metals and gold as markets worried the rise in crude prices might hurt the global economy. Yet uncertainty around Iranian supplies may help keep prices up.
Front-month Brent fell 82 cents to $124.65 a barrel by 0739 GMT, after settling at the highest level since April 29. U.S. oil slipped 50 cents to $109.27, after rising for a seventh straight session and ending at the highest since May 3.
"There were big gains in the oil market in the last 10 days because of the Iran issue," said Ken Hasegawa, a Tokyo-based commodity sales manager at Newedge Japan. "We may see prices come down $2 to $3 a barrel in the next few days unless there is some change in the fundamental factors."
Even if there is a correction, tensions in the Middle East have created a new, higher range for oil, Hasegawa said. Brent may trade between $110 and $125 over the next two to three months compared with $105 to $115 earlier this year. U.S. oil may range from $95 to $110 against $95 to $105, he said.
Oil may also have pared gains as Saudi Arabia increased exports sharply in the past week and is offering extra supplies to its biggest customers worldwide in what industry sources said appeared to be a bid to tame runaway prices.
Comments by U.S. Treasury Secretary Timothy Geithner that the Obama administration was weighing the circumstances that could warrant tapping the nation's strategic oil reserves may have prompted investors to book profits.
"It is taking a lot of pressure off prices," said Ben Le Brun, a Sydney-based markets analyst at OptionsXpress. "It is definitely in the United States' interest to do so. Oil at this level is very detrimental for the United States and the global economy."
FEARS OF SUPPLY DISRUPTION
Iran has sharply stepped up its controversial uranium enrichment drive, the U.N. nuclear agency said on Friday. The increase of work that can have both civilian and military purposes underlines the fact that Tehran has no intention of backing off from a long-running dispute with the West that has sparked fears of war.
The U.N. report heightened fears of a supply disruption and could stoke worries in Israel, which has threatened Iran with pre-emptive strikes on nuclear sites. That would send shockwaves across the region and drive oil even higher.
