Oil slips below $135 after OPEC questions high price

NEW YORK -- Oil prices pulled back Friday after OPEC questioned whether crude can remain so high through the rest of the year and the dollar gained against the euro. Meanwhile, U.S. filling station operators pushed average gas prices deeper into record territory.

Light, sweet crude for July delivery fell $1.88 to settle at $134.86 on the New York Mercantile Exchange.

In its monthly market report, the Organization of Petroleum Exporting Countries said oil's recent volatility "reconfirms the view that current price levels do not reflect supply and demand realities."

Looking ahead to the second half of the year, the cartel added: "A review of the prospects ... also shows little support for prices to remain at current levels."

OPEC lowered its 2008 global demand forecast, saying it now expects demand to increase 1.28% to an average of 86.9 million barrels per day, down from a previous forecast of 1.35%. That decision follows similar moves by the U.S. Energy Department and the International Energy Agency earlier in the week.

"It tells me that demand is slowing and it could accelerate if prices don't come down soon," Phil Flynn, an analyst at Alaron Trading in Chicago, said of the revised forecasts. "It's a sign that maybe the bull run could come to an end. You don't want to say that for sure, but you're starting to see some shifts."

Oil prices were also pressured by speculation that Saudi Arabia may boost production following a report in the Middle East Economic Survey, an industry publication.

Crude prices have fluctuated widely since they surged nearly $11 in a single session to a trading record above $139 a week ago. The price for a barrel has swung back and forth in a $10 band since then.

Some investors believe prices could yet push higher. Analysts call oil's current wavering "range-trading," as traders await direction from a significant move in the dollar or change in supply and demand fundamentals.

"There is no driver out there to cause prices to break out of this range yet," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The overall market trend is still upward. There are still many supply side concerns that will continue to support prices at high levels."

A stronger dollar helped keep oil prices in check. The greenback gained against the euro after a Labor Department report showed consumer prices rose by the biggest increase since November, helping alleviate concerns that growing inflation could force shoppers to tighten their belts.

Investors who bought commodities such as oil to protect against inflation when the dollar was falling tend to sell when the greenback gains ground. Also, a stronger dollar makes oil more expensive to investors overseas.

At the gas pump, the price for an average national price for a gallon of regular rose to a record $4.066 overnight, from $4.06 a day earlier, according to AAA and the Oil Price Information Service. Diesel also set a record, rising 0.2 cents to $4.796 a gallon.

The pain from the high cost of fuel is by no means limited to the U.S., where gas and diesel remains far lower than in Europe and some parts of Asia.

Many developing countries, which typically have far lower household incomes, hold food and fuel prices lower through subsidies. But higher commodities costs are forcing some governments to increase those subsidized prices as well, sometimes sparking protests.

In Malaysia, more than 1,000 opposition supporters marched through Kuala Lumpur Friday to protest the government's decision last week to hike retail prices 41% to $3.30 a gallon.

U.N. Secretary-General Ban Ki-moon said soaring food and fuel costs could pose a threat to global stability.

"Unless we properly manage this issue, this could trigger a cascade of other challenges and crises affecting not just social and economic issues, but also political and security issues," Ban said following talks in London with British Prime Minister Gordon Brown.

Associated Press Writers George Jahn in Vienna, and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.