Oil: Prices fall from record high, Iran in focus

NEW YORK - Oil faded from a US$67 high but the United States' refusal to rule out using force against Iran, Opec's second biggest producer, limited losses.

Doubts that the oil industry can pump and refine enough crude have catapulted prices nearly 40 per cent higher this year.

US light crude on the New York Mercantile Exchange settled at US$66.27 per barrel, down 59 cents, having surged more than US$1 to touch a record US$67.10. London Brent crude fell 87 cents at US$65.58, after hitting a record high of US$66.85 on the International Petroleum Exchange.

The losses came as the top economist at the International Energy Agency warned that red hot oil prices would crimp world economic growth this year.

But tensions in Iran helped keep prices bubbling. Analysts at Washington-based PFC Energy said some were looking for oil to breach US$70 a barrel. Adjusted for inflation, that would bring it within sight of the US$82 average in 1980, the year after the Iranian revolution.

Iran's determination to press on with its nuclear programme in defiance of the West has put the world's fourth biggest crude producer at risk of punitive United Nations sanctions.

"As long as the prospect of sanctioning 4 million barrels per day of Iranian oil is out there, the Iranian situation, in our view, will be the front-and-center issue that will command market attention," said Edward Meir of Man Energy.

It also drew strong words over the weekend from US President George W. Bush, who said he would consider using force against Iran as a last resort.

Record high oil prices will cut world economic growth and widen current account gaps in rich and emerging economies, the IEA's chief economist told Reuters in Istanbul on Monday.

"If this year's average oil price hits US$50, then this will slash 0.8 per cent off the world economic growth," Fatih Birol told Reuters in an interview. US crude this year has averaged around US$53 a barrel.

Analysts said the oil price could well climb further.

"Crossing US$60 triggered an influx of fund money and this money is all looking for prices to go higher still," PFC Energy said in a report.

Geoff Pyne, energy consultant for Standard Bank, said much of the recent rise was caused by fear and speculation, but added: "It is quite right to say the security of supply is not the same as it was four to five years ago."

- REUTERS