Oil drops below $144 a barrel, poised to resume upward march

VIENNA, AUSTRIA: Boosted by a stronger dollar, oil prices shed close to US$3 Monday but remained poised to resume their upward journey as traders watched for further weakening of the greenback and renewed Mideast tensions.

Light, sweet crude for August delivery was at US$143.54 a barrel in electronic trade on the New York Mercantile Exchange by noon in Europe US$2.78 lower than Thursday's floor close.

After the last few weeks' dizzying record-setting pace, however, traders and analyst were skeptical that the drop represented the breaking of any price bubble.

Some relief on the price front also came from Iran. On Friday, Tehran gave a response to an international offer of incentives if it suspends uranium enrichment, a central part of its nuclear program that can produce either fuel for a nuclear reactor or the material for a warhead.

Iranian state media reported Friday that EU foreign policy chief Javier Solana and Iran's top nuclear negotiator, Saeed Jalili, have agreed to hold the latest in a series of talks in the second half of July.

``The Iranian situation turned confrontational last week which raised valid concerns in the oil market. Now that seems less likely and this is a positive development,'' said John Vautrain, an analyst with Purvin & Gertz in Singapore.

Still diplomats familiar with the offer suggested it contained little new. And a European official told the AP that Solana had not committed himself to any meeting until Tehran's offer was thoroughly examined by the six nation seeking to engage the Islamic republic.

''As we look ahead to this week the bulls have their crosshairs set on $150,'' wrote analyst and trader Stephen Schork, in his Schork report. ``At this point,that critical point of reference looks like a done deal, but time will tell.''

The contract hit a trading record of US$145.85 on Thursday in New York before settling at a record close of US$145.29 a barrel. There was no floor trade Friday in the U.S. due to the nation's Independence Day holiday.

The bulls were also encouraged by comments from the head of the Organization of Petroleum Exporting Countries over the weekend, said Vautrain.

OPEC President Chakib Khelil said that surging oil prices aren't likely to fall amid strong demand, especially from China and India.

Khelil also told an energy conference in Algiers on Sunday that the steady increases of late were unrelated to supply and demand, blaming the weak U.S. dollar, oil's primary currency of exchange.

Khelil said he believes the reason the dollar has fallen against other currencies is the U.S. decision to lower interest rates in an effort to boost the American economy.

A falling dollar has helped boost oil prices around 50 percent this year as investors often buy commodities such as oil as a hedge against inflation when the greenback weakens. Also, a struggling dollar makes oil less expensive to investors overseas.

Reversing the trend, at least temporarily, the euro fell against the dollar Monday as markets continued to mull less-than-hawkish comments from the European Central Bank on its future interest rate course, and industrial production numbers are expected in Britain and Germany.

The 15-nation euro bought US$1.5617 in European morning trading, down from its level of US$1.5699 in New York late Thursday. Markets in the U.S. were closed Friday for the Independence Day holiday. digits since the start of the year.

In other Nymex trade, heating oil futures fell by more than 12 cents to US$3.9340 a gallon (3.8 liters) while gasoline prices dropped by over 5 cents to US$3.5175 a gallon. Natural gas futures lost more than 24 cents to fetch US$13.336 per 1,000 cubic feet.

August Brent crude fell US$1.11 to US$143.31 a barrel on the ICE Futures exchange in London.

Thanks : ET