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Supply fears hold crude above US$60

Crude-oil futures held above US$60 a barrel yesterday on supply fears and concerns that Iran's new hardline president could undermine its oil industry, sparking warnings that persistently high oil prices could hurt Asia's economic growth.

A prolonged refinery outage in Texas added to worries that oil supplies won't meet demand, especially given the US' huge appetite for crude, which showed no signs of slowing.

Mid-afternoon in Singapore, front-month August crude on the New York Mercantile Exchange was trading at US$60.12 a barrel, down US$0.42.

The contract flirted with the US$61-a-barrel mark before settling at US$60.54, a gain of US$0.70. It was the third straight day of record closing prices.

Prices are more than 65 percent above year-ago levels, but would still have to top US$90 to reach the inflation-adjusted high set in 1980.

On London's International Petroleum Exchange, August Brent traded US$0.28 lower at US$59.02 a barrel.

Prices were buoyed 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.

"His populist campaign is already inviting comparison with Hugo Chavez, president of fellow OPEC member Venezuela, who has built a leftist pro-worker platform on a strategy that uses oil revenues to finance social development, but has undermined oil investment," Energyintel analyst Jane Collin said.

"Were Iran to go down that route, OPEC's ability to meet projected global demand could be tested to the limit," she added.

Iran is the world's fourth-largest crude producer.

Demand is expected to top 84 million barrels daily this year, and many analysts believe 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.

In Asia, Japanese Finance Minister Sadakazu Tanigaki said yesterday that both oil producers and consumers should begin to take steps to deal with lofty oil prices, adding that Tokyo was monitoring the price movement "carefully."

Morgan Stanley economist Andy Xie (謝國忠) warned "Asia could slide into recession" if prices do not fall back.

"Many argue that, even though there may be plenty of crude, oil prices are high because of insufficient refining capacity globally," Xie said.

"This is akin to saying that even though there is a plentiful supply of vegetables, vegetable prices are high because there is not enough restaurants. As long as there are enough traders believing in this, prices will continue to be pushed higher, making it a self-fulfilling assumption," Xie said.
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