KEY POINTS:
Oil fell yesterday, extending the previous session's decline on profit-taking from record highs, but hovered near US$88 ($118) on simmering geo-political tensions and a weak dollar.
Analysts said oil's decline came as a surprise as news over the weekend was mostly bullish and there were no bearish factors weighing on prices.
"A possible explanation could be more profit taking or that investors are adopting a more cautious view about how tight the market will be in [northern] winter," said David Moore, a commodities analyst at the Commonwealth Bank of Australia.
United States oil, which has rallied more than 10 per cent since October 8, has averaged just over US$67 a barrel this year and is climbing towards the inflation-adjusted high of US$101.70 hit in April 1980, a year after the Iranian revolution.
The weakening dollar and surging energy costs have increased worries about the health of the US economy, already battered by the crisis in the subprime mortgage sector.
Despite oil's near US$2 slide since Friday's record US$90.07 a barrel, analysts said mounting tensions between Turkey and Kurdish rebels in northern Iraq would continue to provide underlying support and keep prices close to record territory.
Turkey vowed on Sunday to take tough action after Kurdish guerrillas killed 17 of its solders, but said Washington had asked it to hold back for a few days more from sending troops to the rebels' hideouts in northern Iraq.
News of Iran's chief nuclear negotiator resigning has also raised concerns of more Middle East instability.
Analysts said the man named to replace Ali Larijani could present the West with a harder line in a long-running dispute over Tehran's atomic ambitions.
Saturday's announcement exposed a rift over tactics with Iranian President Mahmoud Ahmadinejad, who accepted Larijani's resignation and has taken an uncompromising approach in the nuclear standoff.
A weakening US dollar would also keep oil prices firm. The US dollar sank to fresh lows yesterday while the yen surged after a meeting of industrialised powers ended with no words of support for the dollar, offering a green light to speculative sellers.
Opec said on Friday that volatility in global oil prices reflected growing economic uncertainties after recent turmoil in credit and money markets.
Algerian Energy and Mines Minister Chakib Khelil said on Saturday that oil prices might rise further after their record rally last week but should ease towards the second quarter of next year.
- Reuters
