NEW YORK – Oil faded more than a dollar from a $67 high on Monday but the United States' refusal to rule out force against Iran (search), OPEC's second biggest producer, limited losses.
Doubts that the oil industry can pump and refine enough crude have catapulted prices nearly 40 percent higher this year.
U.S. light crude was trading at $65.80 per barrel at 1730 GMT, down $1.06 having surged more than $1 on Friday to touch a record $67.10. London Brent crude was down $1.40 at $65.05 after hitting a new record high of $66.85 on Monday.
The losses came as a top economist at the International Atomic Energy Agency (search) warned that red-hot prices would crimp world economic growth this year.
But tensions in Iran helped keep prices near record prices. Analysts at PFC Energy said some were looking for oil to breach $70 a barrel. Adjusted for inflation that would bring it within sight of the $82 average in 1980, the year after the Iranian revolution.
Iran's determination to press on with its nuclear program in defiance of the West has put the world's fourth biggest crude producer at risk of punitive United Nations (search) sanctions.
"As long as the prospect of sanctioning four million barrels per day of Iranian oil is out there, the Iranian situation, in our view, will be the front and center issue that will command market attention," said Edward Meir of Man Energy.
It also drew strong words at the weekend from U.S. President George W Bush, who said he would consider using force against Iran as a last resort.
Economic Growth to Suffer
Record high oil prices will cut world economic growth and widen current account gaps in rich and emerging economies, the IAEA's chief economist told Reuters in Istanbul on Monday.
"If this year's average oil price hits $50, then this will slash 0.8 percent of the world economic growth," Fatih Birol told Reuters in an interview. U.S. crude so far this year has averaged around $53 a barrel.
Analysts said the oil price could well climb further.
"Crossing $60 triggered an influx of fund money and this money is all looking for prices to go higher still," PFC Energy said in a report.
Geoff Pyne, energy consultant for Standard Bank, said much of the recent rise was caused by fear and speculation, but added: "It is quite right to say the security of supply is not the same as it was four to five years ago."
New Iranian President Mahmoud Ahmadinejad (search) nominated an industry outsider, acting Tehran mayor Ali Saeedlou, to the key post of oil minister on Sunday leaving foreign investors guessing how the country's future oil policy would unfold.
The conservative president has vowed to root out the "mafias" he says run Iran's oil industry, to stop the trend of giving preferential treatment to foreign investors, and to distribute Iran's oil wealth more directly to the people.
"He has had to accept compromises on many of the big cabinet appointments apart from the oil ministry — Saeedlou is his man," said political analyst Mahmoud Alinejad.