Supply fears keep oil prices high

Attacks on Nigeria's oil fields have driven up the oil price in the past

Oil prices in the US slipped below $77 a barrel in choppy trade, but still hovered close to record highs following a rally last week.

New York crude fell 19 cents to close at $76.83 after touching $77.33 during the session.

On Friday, New York crude closed at $77.02 a barrel - a cent below the record set on 14 July 2006.

The oil price falls came as short-term traders took advantage of the rising market to take profits, analysts said.

The strong pricing we have experienced in recent days is due to investors ploughing surplus cash into the oil market Victor Shum, Purvin & Gertz

In London, Brent crude shed 52 cents at $75.74 after gaining more than $1 on Friday following a report from the US Commerce Department that showed US economic growth beat expectations to rise 3.4% in the three months to the end of June.

That pushed expectations about demand levels higher and saw traders buying up oil contracts, adding $2.08 to the price of New York crude before the weekend.

Temporary setback?

Some analysts believe the setback is temporary, expecting the price of crude to climb even higher on concerns that Opec - the powerful group of oil producing nations - will not expand production to meet strong demand.

Opec officials have been giving mixed signals whether the oil producing cartel will increase output by the end of the year, amid fears over the impact of higher energy costs on inflation and economic growth.

Other market experts, meanwhile, warn that much of the heat in the price is from speculative buyers hoping to make quick gains.

"The strong pricing we have experienced in recent days is primarily due to institutional investors ploughing surplus cash into the oil market, not really due to physical issues," said Victor Shum, an analyst with Purvin & Gertz.

Should that be the case, then oil prices could fall almost as quickly as they have climbed, with some taking the view that without fresh geopolitical shocks or hurricane-induced disruptions, oil prices could fall back to under $70 a barrel in the near term.