Oil: Price holds firm near US$69 a barrel

New York, June 20 Reuters - Oil steadied near US$69 today, holding its own against a commodities rout triggered by the prospect of rising US interest rates and cooling demand in China.

Since the start of 2002, strong demand and supply limitations have catapulted oil US$50 higher. The rally gathered pace as pension and hedge funds channelled money into oil in search of higher returns than they find in stocks or bonds.

US crude settled down four cents at US$68.94 a barrel while August Brent crude settled at US$68.08, down three cents.

"Our view is that it's not a bad time to buy when you see the price below US$70. Fundamental data is really solid," said Mark Mathias, chief executive of hedge fund Dawnay Day Quantum.

Since mid-May, bearish economic data has hit gold, silver, copper and zinc, wiping as much as 25 per cent off prices that had soared to all-time or multiyear highs.

But oil has confounded expectations that it would fall substantially from the US$75.35 record it set in April - the highest price in real terms since 1980, the year after the Iranian Revolution.

Also underpinning prices, which have traded in a US$68-US$73 band for more than six weeks, is the worry that Iran, the second biggest producer in the Organisation of Petroleum Exporting Countries, may halt exports if there is an escalation in the dispute over its nuclear programme.

Tehran has yet to respond to an offer made by world powers to end the standoff, but it said Sunday a "positive atmosphere" had been created that could help resolve the dispute.

"The Iranian nuclear issue can turn very bullish any time and, therefore ... is flooring the market in the short term," French bank Societe Generale said in a report.

Saudi Arabia's ambassador to the United States said world oil prices could triple, if a military conflict erupted between the west and Iran.

"The idea of somebody firing a missile at an installation somewhere will shoot up the price of oil astronomically," Prince Turki Al-Faisal said at a press conference.

Concerns over the strength of oil demand in the two biggest consumers - the United States and China - had knocked almost US$1 off the oil price on Monday local time.

China has moved to curb growth by increasing the amount of money banks must keep in reserve. In the United States, rising interest rates may slow economic growth and oil demand.

"The market is caught between the big macro picture of not enough surplus production and refining capacity on the one hand, and faltering demand on the other hand," said Tony Nunan, assistant general manager of risk management at Mitsubishi Corp.

US oil stocks data on Wednesday local time may determine market direction in the near term. A Reuters poll forecast a decline of 200,000 barrels in US crude stocks last week, and an increase of 1.2 million barrels in petrol inventories, their eighth build in a row.

- REUTERS