Oil prices holds steady after nearly $4 drop in previous session

By EILEEN NG , Associated Press

Last update: July 8, 2008 - 5:40 AM

KUALA LUMPUR, Malaysia - Oil held steady Tuesday in Asia as a weaker dollar and renewed buying interest helped support prices after a plunge of nearly $4 in the previous session.

Monday's sharp drop was driven by easing concerns over potential supply disruptions but analysts warned the pullback was likely to be fleeting.

"The plunge is really a temporary bull correction and is viewed by the market as a buying opportunity," said Victor Shum, an analyst with Purvin & Gertz in Singapore. "We are also seeing the U.S. dollar easing a bit ... and that has helped support oil pricing."

Late afternoon in Singapore, light, sweet crude for August delivery was up 18 cents at $141.55 a barrel in electronic trade on the New York Mercantile Exchange. The contract fell $3.92, or about 2.7 percent, to settle at $141.37 in New York on Monday.

Oil hit a trading record of $145.85 on Thursday before settling at a record close of $145.29 a barrel. There was no floor trade in the U.S. on Friday due to the July Fourth holiday.

Fears that fresh conflict in the Middle East could cut oil supplies eased over the weekend after Iran gave an undisclosed response to an international offer of incentives if it suspends a central part of its nuclear program.

But Shum said the conflict isn't over.

President Mahmoud Ahmadinejad has insisted Iran would not bow to pressure to halt uranium enrichment, even though Tehran indicated willingness to open talks. World powers fear that Iran could use the uranium to build nuclear weapons.

"There are mixed signals and the Iran situation has certainly not been resolved," Shum said.

Ahmadinejad told Malaysian media during a visit to Kuala Lumpur on Monday that all nations should be able to use nuclear energy without any restrictions, stressing that it would provide them with a cheap alternative to crude oil.

Iranian state media reported that the European Union policy chief Javier Solana and Iran's top nuclear negotiator Saeed Jalili would hold talks in the second half of July.

In Asian currency trade, the dollar was weaker against the euro and yen compared with values seen Monday in New York. The euro was holding at $1.5736, while the dollar was buying about 106.40 yen.

A falling dollar has helped boost oil prices around 50 percent this year as investors often buy commodities such as oil as a hedge against inflation when the greenback weakens. Also, a struggling dollar makes oil less expensive to investors overseas.

In other Nymex trade, heating oil futures fell 0.19 cent to $3.9677 a gallon (3.8 liters) while gasoline futures dropped 0.56 cent to $3.4771 a gallon. Natural gas futures fell 6.2 cents to $12.915 per 1,000 cubic feet.

August Brent crude rose 21 cents to $142.11 barrel on the ICE Futures exchange in London.