Oil hits high of $126.40 per barrel before succumbing to profit-taking

OIL MAINTAINED its record-breaking run yesterday, rising to a new high of $126.40 per barrel before succumbing to a wave of profit-taking.

The decline came as as a dip in crude oil imports into the world's second-largest consumer, China, stirred concerns that high prices were eating into demand.

US crude traded down 24 cents to $125.72 as European markets closed off the earlier record. London Brent crude traded down $1.01 to $124.39 a barrel.

China's April crude oil imports decreased against levels of a year ago, the first monthly year-on-year decline in 18 months, although analysts said the dip was a one-off adjustment as refiners ran down stocks after unusually high March purchases.

"This looks like a bit of a correction on a vastly overbought market," said Mike Zarembski, senior commodities analyst for optionsXpress. "News that China's imports were down in April was a factor for some of the money to come off the table, but the market is still robust."

Strength in distillates for power-generation globally had supported crude in recent weeks and signs that demand could falter had helped to weaken the energy complex, Mr Zarembski added.

Booming demand in emerging economies such as China and India have sent oil prices up six-fold since 2002, with the weak dollar also drawing a wave of speculators seeking a hedge against inflation over the past eight months.

"We sold off on the Chinese import data, which suggested prices at these levels are weighing on demand. But we've pared those losses," said Eric Wittenauer at AG Edwards.

"Time and again, this highly-resilient market has sold off only to recover and hit new highs."

Oil has jumped about 13 per cent since slipping to $110.53 a barrel on May 1st as investors seized on supply disruptions in the North Sea and in Nigeria as well as on demand for distillate fuels such as diesel.

A recent Sanford C Bernstein study said that investment flows in the Standard Poor's GSCI index and Dow Jones-AIG Commodity Index had risen to $250 billion so far this year, up from $169 billion at the start of the year.

Oil's runaway gains prompted talk last week that OPEC could consider boosting output before its next scheduled meeting in September should crude oil prices keep rising.

But oil officials from Ecuador, Qatar, the UAE and Iran said there were no plans for an early meeting as soaring prices were out of OPECs control.

- (Reuters)