World oil prices eased on Monday after an unprecedented surge that prompted consumer nations to urge a production increase and warn of a global recession if the price hits $150 a barrel .
New York’s main oil futures contract, light sweet crude for July delivery, fell 66 cents to $137.88 a barrel after making its biggest one-day jump ever on Friday. The contract spiked $10.75 a barrel to close at a record $138.54.
Analysts and a key member of the OPEC producers’ cartel warned crude could soon hit $150 a barrel.
Also on Friday in intraday trade, the benchmark contract crossed $137, $138 and $139 for the first time and soared to an all-time high of $139.12.
Brent North Sea crude for July dropped $1.20 to $136.49 a barrel after smashing barriers Friday in London. Brent hit a new intraday high of $138.12 before it eased back to settle at a record $137.69, up $10.15.
Both futures contracts far exceeded their prior record highs set on May 22 — $135.09 in New York and $135.14 in London.
Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore, said the sharp jump in prices was a market overreaction to a confluence of factors.
‘It is not surprising that there is a bit of a pullback after such a sharp increase. The increase in oil prices has nothing to do with supply and demand, and fundamentals did not change.’
Crude oil leapt in reaction to a new decline in the U.S. dollar after the European Central Bank on Thursday signalled an interest rate hike and the U.S. reported a sharp rise in unemployment on Friday, analysts said.
A report by the U.S. Labor Department showed that the U.S. unemployment rate rose unexpectedly by a half percentage point to 5.5 percent in May, the steepest increase in more than two decades.
Asian stocks tumbled on Monday after the surge in oil prices and the U.S. unemployment numbers.
‘Optimism about the U.S. economy evaporated,’ driving investors into the oil market, Shum said, forecasting a ‘choppy period’ for the near-term oil market.
The dollar was unchanged against the euro on Monday, at $1.5777 in Asian afternoon trade.
A weaker greenback boosts oil prices because it makes crude relatively cheaper for buyers using stronger currencies, analysts said.
Compounding the dollar squeeze were reported remarks about Iran’s nuclear programme by Israeli Deputy Prime Minister Shaul Mofaz. Analysts said the comments fanned fears of a Middle East conflict.
‘If Iran continues its nuclear weapons programme, we will attack it,’ Mofaz told the Yediot Aharonot daily in Israel, stressing that such an operation could only be conducted with U.S. support.
On Sunday, Iran’s representative to the OPEC oil cartel warned the price of crude oil is set to rise even further to $150 a barrel by the end of summer.
Iran is the number two exporter in the Organisation of the Petroleum Exporting Countries (OPEC).
On Friday, investment bank Morgan Stanley predicted that light sweet crude will hit $150 by July 4 because of tight supplies.
Eleven nations that guzzle nearly two-thirds of the world’s energy called Sunday for an urgent hike in global oil production.
Japan’s energy minister Akira Amari, who hosted their meeting, warned the world could plunge into recession.
Australian Prime Minister Kevin Rudd in Japan Monday said the world’s richest nations, must pressure oil-producing countries to increase output to deal with spiralling oil prices.
Malaysia wants the fuel price issue to top the agenda at this month’s meeting of the Organisation of the Islamic Conference (OIC) in Uganda, Foreign Minister Rais Yatim, whose country chairs the group, said Monday.
Iran’s Oil Minister Gholam Hossein Nozari has said the market is oversupplied with oil and a production increase would not affect prices.