By MICHAEL P. REGAN, AP Business WriterTue Jun 28, 4:35 PM ET
Oil prices backed off their record highs Tuesday, retreating well below $60 a barrel as traders took profits ahead of the upcoming holiday weekend and an inventory report Wednesday that is not expected to keep prices rising.
After settling at a record high above $60 a barrel on Monday because of concerns about strong demand and potential supply bottlenecks, light sweet crude for August delivery fell $2.34 to settle at $58.20 a barrel on the New York Mercantile Exchange on Tuesday afternoon.
"I think the rally really just sort of ran out of gas, so to speak," said John Kilduff, oil analyst at Fimat USA in New York.
"When you get to the lofty $60 level, and really where we are now, you have to have a continuation of bullish news, of new and continued worries in the background of the market," he said. "Absent those, the latest buyers get nervous quickly and exit their positions. I think that's what you saw today ... a lot of folks getting out of this market ahead of the long weekend."
The August contract had flirted with the $61-a-barrel mark Monday before settling at $60.54, a gain of 70 cents.
Prices are still well above year-ago levels, but would still have to top $90 to reach the inflation-adjusted high set in 1980.
In London, Brent crude dropped $2.12 to $57.18 a barrel.
Heating oil fell 5.57 cents and gasoline futures by 5.10 cents on the Nymex to settle at $1.6204 and $1.6240 a gallon respectively.
"It's perhaps a much needed correction," said Tom Bentz, senior energy analyst at BNP Paribas Commodity Futures in New York.
Prices had run up Monday after the weekend election of Tehran Mayor Mahmoud Ahmadinejad as Iran's president. He said he would boost the transparency of his nation's oil deals, clamp down on the country's oil "mafias," give Iranians a share of oil revenue and pursue a nuclear energy program.
"The market was extremely nervous to the upside" when news of the Iranian elections hit, said Bentz, but "things are kind of settling down here today."
Oil demand is expected to top 84 million barrels a day this year, leading to fears there is not enough of a supply cushion to cover the market from any prolonged output disruption. Excess production capacity is estimated to be about 1.5 million barrels a day, most of it in Saudi Arabia.
Japanese Finance Minister Sadakazu Tanigaki said Tuesday that oil producers and consumers should both begin to take steps to deal with lofty oil prices, adding that Tokyo was monitoring the price movement "carefully."
The recent spike had fed by fears that refineries in the United States will not be able to meet winter demand for heating oil and other distillates as it pumps full tilt to meet summer needs.
Fears heightened after a Royal Dutch/Shell Group-Petroleos Mexicanos joint venture refinery in Texas pushed back the timing of bringing a 67,000-barrel-a-day gasoline-producing unit back from midweek to this weekend.
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