WASHINGTON – Oil fell from a record high of $75.78 a barrel Friday on signs of easing tension between the West and Iran, the world's fourth largest oil exporter.
Iran's chief nuclear negotiator said he had a "positive impression" of a Western proposal for Iran to stop enriching uranium in return for a package of incentives. Oil had earlier risen due to strong demand in the United States.
U.S. crude settled $1.05 lower at $74.09 a barrel, after hitting an all-time high of $75.78. London Brent crude was down 57 cents at $73.51, after hitting a record $75.09.
Prices drew early support from a U.S. government report on Thursday showing gasoline demand grew by 1.4 percent in the last four weeks from a year ago. Data released on Friday showed U.S. jobless figures stayed at a five-year low in June.
"While the global economy is staying strong, demand is going to be very supportive," said Tony Dolphin of Henderson Global Investors.
"I don't see oil falling back a lot. I think it is likely to remain in a range and perhaps gradually drift higher."
Oil in New York is up 23 percent this year because of supply cuts in Nigeria, the dispute over Iran's nuclear work and a flood of investment fund money into commodities. North Korea's missile tests this week added to global tensions.
"North Korea has been a minor or secondary factor in what's happened to oil this week," said Mike Wittner of investment bank Calyon. "The main factor has been new money coming in."
Adjusted for inflation, oil is more expensive than at any time since 1980, the year after the Iranian revolution.
"In the very near term, it's hard to see the oil price coming down appreciably," said David Dugdale of MFC Global Investment Management.
Rebel attacks in Nigeria have shut almost a quarter of the country's output and the Iranian nuclear row has raised fears of supply cuts from the major exporter.
Iran's chief nuclear negotiator, Ali Larijani, said on Friday his meeting with the European Union's foreign policy chief this week had been "very fruitful and constructive."
Western powers have demanded Iran make a full reply to an offer of a package of incentives for it to halt nuclear enrichment by a July 15 Group of Eight summit in St. Petersburg.
In Nigeria, the world's eighth-largest oil exporter, gunmen on Thursday abducted a Dutch man who was working on an unfinished Shell plant.
HIGH PRICES 'PERMANENT'
Oil has rallied from below $20 at the start of 2002, driven by rising global demand led by the U.S. and China that has stretched oil producers and refiners.
OPEC, the producer group that pumps more than a third of the world's oil, has been powerless to stem the surge in prices, blaming a lack of investment in new refineries.
Growing demand and a strain on supply suggest that strong oil prices are here to stay unless a recession leads to a collapse in demand, investors say.
"High oil prices are now a permanent feature because of the rapid industrialization of Asia, particularly China," Henderson Global Investors' Dolphin said.
"Their growth of demand is going to steadily increase and OPEC and other oil producers are going to struggle to keep up with it."