Oil markets drew breath on Tuesday after nine days of gains that lifted crude by $6 to within striking distance of the all-time high above $78.
The rally to an 11-month high of $76.34 a barrel on Monday has coincided with a big rise in investment flows. Speculators boosted their long positions in the New York Mercantile Exchange crude oil market to a record in the week to July 3.
At 0946 GMT London Brent crude, currently seen as the best indicator of the global market, was down 60 cents at $75.18. U.S. crude was down 39 cents at $71.80.
"Strong energy demand is driving crude prices toward their 2006 highs. Retracement levels of the 2006/07 fall have been swept aside on both sides of the Atlantic," Barclays Capital technical analysts wrote in a report.
Oil prices have risen at the start of the third quarter in tandem with broader commodities, helping lift the 19-contract Reuters-Jefferies CRB Index to its highest this year.
Citigroup analysts said the influx of investor money accounted for over $10 of the move higher since the start of 2007, when oil was below $60.
"Financial players have now firmly moved ahead as the main near-term driver of oil prices," they wrote in a research note.
Barclays Capital forecast a period of consolidation for Brent crude above $72 ahead of a run at $78.65, the record touched in August 2006. Mark Mathias of hedge fund Dawnay Day Qauntum said he was looking for oil to test $80 this year."We are firmly in the bull camp - don't be short oil!"
Olivier Jakob, an analyst at Swiss-based Petromatrix, said the past week's continued rise in prices and open interest -- the number of contracts that have not been closed -- pointed to more investment money flowing into oil.Supply worries have spurred the rally.
The International Energy Agency, adviser to 26 industrialized consumer nations, predicted an oil supply crunch in its Medium-Term Oil Outlook published on Monday.
The main focus of current supply worries is Nigeria, the world's eighth biggest oil exporter, where militant attacks have shut 22 percent of production, or 661,000 barrels per day.
On Monday four new abductions were reported in the Nigerian oil delta.
"It creates a lot of concerns in the oil trading community, because it shows that the government cannot control the situation," said Tony Nunan of Japan's Mitsubishi Corp.
He said maintenance in North Sea oilfields that make up the basis for the Brent futures contract would provide support to the Brent contract, which on Monday widened its premium to U.S. crude by nearly 60 cents to $3.30 a barrel.
(Reuters, 10/07/2007)