Oil off record on profit-taking, $60 in focus

World oil prices dipped from record highs yesterday as dealers took profits from a four-day rally, but potential supply disruptions and fears of a winter fuel crunch kept markets within sight of $60 a barrel.

US light, sweet crude for July dropped 57 cents to $58.80 a barrel, having hit a record high of $59.52 on Monday. London Brent crude weakened 50 cents to $57.82 a barrel.

"We are seeing a little bit of a pullback after yesterday's strong push higher but there is no sign of any sustained weakness," said Christopher Bellew of London's Prudential Bache.

"The market is well supported by the strike threat in Norway and unrest in Nigeria, while (motor fuel) demand is remarkably robust despite the high prices," he added.

Mediators are working to avert a technicians' strike in the world's number three oil exporter Norway, that could halt 920,000 barrels per day of oil output.

Markets were also jolted by the recent closure of several diplomatic missions in Nigeria after a perceived extremist threat. The missions have since opened.

"The market is so close to $60 it is almost bound to touch it," Refco analysts said in a report. "Prices look too high fundamentally but we have to recognize even a minor supply glitch or hint of one will drive prices higher."

Fears of potential winter shortages have pushed speculators to buy into oil futures contracts for delivery later in the year, sending forward prices on crude, heating oil and London gas oil to record highs.

US crude for December delivery is trading at over $60 a barrel.

Average US oil prices so far this year are up more than $10 a barrel despite almost flat-out pumping by the Organisation of Petroleum Exporting Countries, which has repeatedly said refining capacity not crude supply is key to bringing down prices.   

Markets were unimpressed by news on Monday the cartel will start consultations to boost oil supply by an extra half million bpd, even though it is already producing at the highest level in almost 25 years and says there is little demand for more crude.

Abundant Opec supplies have pushed US crude stocks to just under a six-year high, but speculators are betting that refiners worldwide will struggle to keep up with fuel demand this winter.