SINGAPORE - Crude oil futures traded above $60 a barrel Tuesday, lingering near its record closing mark overnight, fueled by persistent supply fears and compounded by uncertainty over foreign involvement in Iran's oil market following the surprise election of a hardline president.
Elsewhere, a fresh warning over a possible recession in Asia was issued and a prolonged refinery outage in the United States added to an already unstable market.
Mid-morning in Singapore, front-month August crude on the New York Mercantile Exchange traded down 17 cents from its record close at $60.37 a barrel.
In New York, the contract flirted with the $61 a barrel mark before settling at $60.54, a gain of 70 cents. It was the third straight day of record closing prices.
Prices are more than 65 percent above year-ago levels, but would still have to top $90 to reach the inflation-adjusted high set in 1980.
Heating oil, meanwhile, fell to $1.6755 a gallon, while gasoline futures rose slightly at $1.6760 per gallon.
Prices were buoyed after the weekend election of Tehran Mayor Mahmoud Ahmadinejad as Iran's president. He said he would boost the transparency of his nation's oil deals, clamp down on the country's oil "mafias," give Iranians a share of oil revenue and pursue a nuclear energy program.
"His populist campaign is already inviting comparison with Hugo Chavez, president OPEC member Venezuela, who has built a leftist, pro-worker platform on a strategy that uses oil revenues to finance social development, but has undermined oil investment," said Energyintel analyst Jane Collin.
"Were Iran to go down that route, OPEC's ability to meet projected global demand could be tested to the limit," she added. Iran is the world's fourth-largest crude producer.
The world's 2005 demand is expected to top 84 million barrels daily, and many analysts believe there is not enough of a supply cushion to cover the market from any prolonged output disruption. Excess production capacity is estimated to be about 1.5 million barrels a day, most of it in Saudi Arabia.
In Asia, Japanese Finance Minister Sadakazu Tanigaki said Tuesday both oil producers and consumers should begin to take steps to deal with lofty oil prices, adding Tokyo was monitoring the price movement "carefully."
Morgan Stanley economist Andy Xie however, warned "Asia could slide into recession" if prices do not fall back.
Another reason for trepidation among traders is the limited refining capacity in the United States, which is increasingly reliant on imports of gasoline. Therefore, any glitch in the U.S. refining system puts more strain on the global supply chain.
The recent spike began over fears that refineries in the United States will not be able to meet winter demand for heating oil and other distillates as it pumps full tilt to meet summer needs.
Fears heightened after a Royal Dutch/Shell Group-Petroleos Mexicanos joint venture refinery in Texas pushed back the timing of bringing a 67,000-barrel-a-day gasoline-producing unit back from midweek to this weekend.