Crude oil futures strayed lower in London Monday as investors opted to take profits from last week's trailblazing climb to record-high levels.
Despite the moderate pullback, a supportive backdrop of surging distillate prices, ongoing supply concerns and a bullish technical outlook are likely to keep the pressure on crude oil prices to the upside, analysts said.
"Light, sweet crude futures should remain robust over the coming week, as global distillate prices...will probably reach new record levels on robust demand," said analysts led by David Kirsh at PFC Energy.
Supply tightness - particularly for the lighter crude grades sought for gasoline and distillate refining - also remains a focus for the markets, they said, given the market's realization "that even small disruptions or threatened ones can have an oversized impact."
At 1144 GMT, the front-month June Brent contract on London's ICE futures exchange was down 55 cents at $124.85 a barrel.
The front-month June light, sweet, crude contract on the New York Mercantile Exchange was trading 67 cents lower at $125.29 a barrel.
The ICE's gasoil contract for June delivery was up $7.25 at $1,177.25 a metric ton, and Nymex gasoline for June delivery was down 141 points at 318.51 cents a gallon.
While surging distillates prices and caution over supply flows provide a strut of fundamental support to crude, a bullish technical outlook continues to trigger crude oil futures buying, market participants said.
"The key driver to this market is still the technical outlook and the ensuing speculative interest," said Andy Riddell, an energy broker at ODL Securities in London.
Latest data from the U.S. Commodity Futures Trading Commission released Friday revealed that futures attracted further speculative inflows as crude oil notched up fresh, record highs last week.
Large speculators increased their net long position to 63,218 contracts on the New York Mercantile Exchange in the week ended May 6, up from 53,311 the week earlier.
Some cautioned, however, that the recent spate of buying has brought with it a heightened risk of a correction lower.
"At this stage, although the path of least resistance seems to be higher still, the severely overbought conditions evident in many of the markets suggests that a sharp correction could be in the cards," said Edward Meir, analyst at MF Global in New York. "We would recommend not jumping in on the long side here for now."
Following reports last week that the Organization of Petroleum Exporting Countries may call a summer meeting to discuss output levels amid record-high prices, Qatar's oil minister Abdullah bin Hamad al Attiyah told Dow Jones Newswires Monday he didn't see the need for ministers to meet prior to their scheduled September gathering.
"There is no need for an early meeting and we don't believe there is a need for more oil in the market," Al Attiyah said. OPEC had received complaints about high prices but not about supply, he said.
Further OPEC headlines are anticipated to emerge from this week's visit of U.S. President George W. Bush's to the Middle East, commencing Tuesday. Bush is due to meet Saudi Arabia's King Abdullah on Friday, when the question of oil output is expected to be raised.
-By Nick Heath; Dow Jones Newswires; (4420) 7842 9405; nicholas.heath@dowjones.com
(END) Dow Jones Newswires
05-12-08 0745ET
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