THE NEW YORK TIMES: Oil Prices Steady After Heavy Commodities Sell – Off

Filed at 10:21 p.m. ET

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SYDNEY (Reuters) – Oil prices steadied on Monday after shedding almost 5 percent last week as investors, spooked by inflation concerns, locked in profits on a broad range of commodities that had been trading around record highs.

U.S. crude (CLc1) was trading 16 cents higher at $68.69 a barrel by 0213 GMT, after falling 92 cents on Friday. London Brent crude (LCOc1) was up 15 cents at $68.83.

“Oil prices have suffered a hangover with the fall in other commodities,'' said David Thurtell, commodities strategist at the Commonwealth Bank of Australia. “They were too far out of line with fundamentals and could still have further to fall.''

Oil's slide on Friday mirrored that of industrial and precious metals, with copper tumbling more than 6 percent and gold more than 3 percent to round off a roller-coaster week which dulled the shine of their recent record-smashing performance.

Investors ditched commodities and equities amid expectations of higher interest rates in the world's major economies and concerns growth would be hit by rising prices, while oil was also hurt by noises OPEC would maintain current high output levels.

“Inflation-worried oil bears were looking for an excuse for a sell-off and it came with the Iranians saying OPEC will leave output where it is, though given the onset of the summer driving season that's hardly a surprise,'' said Commonwealth's Thurtell.

OPEC has been pumping close to full tilt, in response to buoyant demand and high prices, and Iran's OPEC governor said on Friday the cartel was unlikely to change that policy when ministers next meet in Caracas on June 1.

Hossein Kazempour Ardebili, speaking at a joint OPEC and International Energy Agency meeting in Oslo, said supply limits were unlikely to change despite fundamentals suggesting a cut of up to 1.2 million barrels per day is possible.

Actual OPEC production has been reduced by militant unrest in Nigeria, with attacks taking out about a quarter of Nigerian output, though Royal Dutch Shell told Reuters on Friday it expects to return to its abandoned fields “sooner rather than later.''

Nigeria, and political tensions over fellow-exporter Iran's nuclear program, have ensured oil's losses were smaller than some other commodities.

Fears that output from Iran could be disrupted by the dispute over its nuclear ambitions pushed prices to a record of $75.35 in April. Tehran insists its nuclear program is peaceful, but Western countries fear it could be developing atomic bombs. Iranian President Mahmoud Ahmadinejad last week derided foes of Iran's nuclear work as mentally disturbed, ignoring a fresh plea by UN Secretary-General Kofi Annan for all sides in the dispute to calm their rhetoric.

The United States spent the weekend considering a package of inducements and penalties for Iran proposed by its European allies, but the Indonesian foreign minister told Reuters that sanctions imposed on Iran would fail to persuade its fellow-Muslim country to curb its nuclear ambitions.