Oil fell on Monday as traders took profits after supply concerns sent prices above $77 a
barrel last week and near record highs.
U.S. crude fell 44 cents to $76.58 a barrel in volatile trade after gaining $2.07 on Friday. London Brent crude gave up 78 cents to $75.48, after the North Sea benchmark reverted to a discount to U.S. crude last week on lower U.S. oil inventories.
"We've tried to pull back on profit taking after the surge on Friday," said Mike Zarembksi, senior commodities analyst for optionsXpress.
Concerns over falling stocks at Cushing, Oklahoma, the delivery point for the New York Mercantile Exchange's oil futures contract helped push up prices last week.
Further support came from forecasts that supplies could have trouble keeping up with demand growth this year as analysts lowered non-OPEC production estimates.
"In the medium term, and into 2008, the market could be tight, if many large projects do not come on stream, like it happened this year," said Badung Tariono, who manages a
500-million-euro ($683.5 million) energy fund for ABN AMRO Asset management.
"Given the low spare capacity that exists, it could be a wide and volatile trading band of between $60 to $80."
But without fresh geopolitical shocks, or disruptive factors such as hurricanes, oil prices could ease back to either the high $60s or $70s in the near term, Tariono added.
Oil's rally sent it near last year's record high of $78.40, although OPEC has rebuffed calls by consumers for more crude.
OPEC's No. 2 producer Iran said on Sunday it did not expect the exporter group to raise output at its meeting on Sept. 11.
"I do not imagine that, at its next regular annual meeting, OPEC would put the issue of changing its output level on the agenda," Iranian Oil Minister Kazem Vaziri-Hamaneh was quoted as saying.
OPEC Secretary-General Abdullah al-Badri told an Austrian newspaper that oil prices are about $7 per barrel above the real market value because of concerns about supply security.
Weekly U.S. inventory data last Wednesday showed a third straight decline in U.S. crude stocks and analysts said OPEC supply restraints would ensure further falls.
"There are substantial upside risks to prices this winter, if OPEC does not expand output," Francisco Blanch, head of global commodity research at Merrill Lynch, said in a report.
"Should the weather turn unseasonably cold in November or December, we believe oil prices could spike well above $80."
U.S. economic data showing gross domestic product grew at a 3.4 percent annual rate, the fastest since the first quarter of 2006, aided Friday's price gains.
That news helped oil shake off some of the anxiety brought on by a two-day rout in global equity markets, sparked in part by the deteriorating U.S. housing market.