Page last updated at 20:45 GMT, Friday, 4 July 2008 21:45 UK

Iran optimism steadies oil price

Worker checks over oil pumps in Iran
Oil at $150 a barrel is not far away say analysts

The price of oil fell back on Friday, on hopes Iran would react positively to proposals to resolve a dispute over its nuclear development programme.

However, prices stayed near the highs of more than $146 seen on Thursday.

US light, sweet crude was down $1.19 to $144.10 a barrel, while London's Brent slipped $1.15 to $144.93.

The US, China, Russia, Germany, the UK and France have offered Iran trade and other incentives if it suspends its uranium enrichment programme.

Iran said it had responded to the proposals, and had delivered its answer to the European Union's foreign policy chief Javier Solana, without giving any further details.

Mixed bag

A number of factors have combined to push oil prices higher, though some of the factors, such as the problems with Iran, have eased slightly.

Some observers have blamed speculators for pushing oil prices higher.

Others argue that oil reached its record price on Thursday because of investors buying into the commodity ahead of the US independence day holiday.

Two trains are rushing towards each other. One is rallying oil prices and the other is economic recession. At some point they're going to collide
Christopher Bellew, Bache Financial

At the same time, there are expectations that global oil supplies cannot cope with strong demand from industrialising nations China and India.

The President of oil group Opec has blamed the weakening of the dollar, which makes oil a more attractive investment.

Investors often buy commodities such as oil as a hedge against inflation when the dollar weakens. And a weak dollar also makes oil less expensive to investors overseas.

However, on Friday, the dollar gained against the euro amid optimism European interest rates would not rise further in the near future.

Climbing prices

Light sweet crude has risen by 50% this year and hit an all-time high of $145.85 on Thursday - with many analysts saying that $150 barrel was not far away.

On Thursday, Brent climbed as high as $146.69.

"It's going to go higher before it goes lower," said Christopher Bellew, of Bache Financial.

"Two trains are rushing towards each other. One is ...rallying oil prices and the other is economic recession. At some point they're going to collide."


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