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Oil drifts lower after early gains

LONDON - Oil gave up early gains on Monday after a climb to a record high last week of nearly near $128 a barrel.

U.S. light crude for June delivery was down 32 cents at $125.97 a barrel by 0947 GMT.

It closed at $126.29 a barrel on Friday after touching a record peak of $127.82 earlier that day after publication of a bullish price forecast from investment bank Goldman Sachs.

London Brent crude was down 85 cents at $124.14 a barrel.

"The market still has a bullish leaning because of a weak dollar and fuel supply concerns," said Sydney-based David Moore, a commodity analyst at the Commonwealth Bank of Australia.

"As for OPEC, the market has taken the view that it is reluctant to raise production and is not expecting a sudden increase in output over and above what Saudi Arabia has indicated."

Saudi Arabia has boosted oil output by 300,000 barrels per day to meet demand and compensate for other producers' lower output, Saudi Oil Minister Ali al-Naimi said on Friday.

U.S. President George W. Bush said on Saturday he was pleased with the Saudi move, but it was not enough to solve problems in the top energy consumer the United States.

Chakib Khelil, president of the Organization of the Petroleum Exporting Countries, said on Monday oil markets were well supplied and blamed high prices on speculation, a weak dollar and geopolitical problems.

"As for OPEC, indications shows that there is no shortage (of supply)," he said in Algiers.

Qatar oil minister Abdullah al-Attiyah also said on Monday there was no need to boost oil supplies to global markets. "The market doesn't need more oil," he said, pointing to a downward revision in forecast oil demand growth by the International Energy Agency.

Iraq aims to sell an extra 125,000 barrels per day of northern Kirkuk crude in June, lifting overall shipments to a post-war record.

Oil prices have risen six-fold since 2002 and doubled since last year as rising demand from China and other developing nations stretched spare production capacity, adding pressure on the U.S. economy already hard hit by a housing slump.

Diesel has taken centre stage in the world energy crunch as tight power supplies in China, South Africa, Chile, Argentina and parts of the Middle East triggered a boom in demand for middle distillates for electric generators, lending support to oil prices.

Chinese demand for imported diesel is expected to rise even further in June after last week's earthquake disrupted gas supplies to major cities and as companies built stockpiles ahead of the summer Olympics.

Broker Lehman Brothers warned that record-breaking commodities prices that were drawing in hundreds of billions of dollars in new investments threaten to create an asset bubble.