Oil prices slipped yesterday, backing down from a record-high above $67 as a recovery in some US refinery operations eased concerns over tight gasoline supply in the final weeks of the peak driving season.
Globally strained capacity to refine and pump crude oil still supported the market, while Iran's resumption of nuclear work and nomination of an industry outsider as oil minister raised anxiety over supply stability in the world's fourth-largest oil producer.
US light sweet crude oil for September delivery was trading at $66.35 a barrel, down 51 cents or 0.8 per cent. On Friday oil surged more than $1 to touch a new record high $67.10 a barrel, ending the week with a more than seven per cent gain.
"The market is responding to come-backs of some troubled refiners," said Tony Nunan, manager at Mitsubishi Corp.'s petroleum business division in Tokyo.
Some refining units at US oil facilities have finally returned to service from a spate of shutdowns since late-July, which propelled US crude and gasoline futures to historical highs.
On Friday, Chevron Corp. reported that the larger of two crude units at its 260,000 barrel-per-day (bpd) refinery in El Segundo, California, was in the process of restarting.
There were also no fresh problems reported over the weekend, taking the market a few days closer to the end of the traditional driving season, marked by Labour Day on September 5. Despite the slight respite, US crude oil is still about 50 per cent higher than at the start of the year. Most traders and analysts said oil prices might soon resume their rally towards $70 a barrel because of strong demand and a nagging lack of spare capacity in both producing countries and the refining industry.
"Supply is ample at this point, but the market is concerned that fourth-quarter demand might surpass both capacities to pump and refine crude oil," Mr Nunan said.
"Iran's nuclear plans will continue to pose a threat. It may shun foreign investment in its oil facilities."
While Tehran's resumption of nuclear work raised the prospect of UN Security Council sanctions, Iran's new President Mahmoud Ahmadinejad nominated acting Tehran mayor Ali Saeedlou, an oil industry outsider, as oil minister, adding investors' anxiety to over the stability of Iran's four million bpd of oil output.
Parliamentarians are expected to vote on all Ahmadinejad's cabinet nominations within a week.
Iran is also the second-largest oil supplier among member countries of the Organisation of the Petroleum Exporting Countries, which controls one-third of globally produced crude oil.
Supply limitations were underscored last week by new forecasts from the International Energy Agency, which cut its estimate of non-Opec supply growth.
Non-Opec producers are failing to deliver as much oil as expected this year, leaving Opec to fill the gap.