Oil prices approached a new record yesterday after news of the death of King Fahd of Saudi Arabia unsettled markets.
A barrel of US light crude for September delivery reached $61.65 as traders fretted over the chances of a policy change in Saudi Arabia - the world's biggest producer of oil.
But the prevailing view was that the impact of the news would be temporary as King Fahd had been in hospital for a prolonged period and his brother, Crown Prince Abdullah, has been de facto leader during the past decade.
Fears of a hostile stand-off in Iran were also troubling traders as officials in the oilrich country have set a deadline for EU negotiators to submit a list of incentives to stop it from restarting uranium reprocessing work.
Oil prices hit an intra-day high of $62.10 a barrel on July 7 and remain around 40 per cent higher than a year ago.
Recent hurricanes off the US coast have supported prices and led to a number of power outages and shutdowns on rigs in the Gulf of Mexico, including the Thunder Horse platform owned by UK oil giant BP.
Concerns over summer supply shortages have been reawakened over the past few weeks as gasoline stocks in the US have fallen to the lowest levels since late last year.
Iran's latest threat to restart its nuclear enrichment programme was keeping markets jittery because it could disrupt oil supplies from Opec ' s second- largest exporter.
Iran threatened on Sunday to restart uranium reprocessing work if negotiators from the UK, France and Germany do not immediately offer a promised package of incentives to entice Tehran to freeze its nuclear program.
Tehran halted uranium enrichment in November under international pressure led by the US, which says the country's nuclear programme is aimed at making weapons. Iran maintains its programme is peaceful.
Meanwhile, Saudi Arabia will adhere to its long-standing oil policy aimed at keeping global markets well supplied to stabilise prices following the death of King Fahd, Saudi sources said.
"I am sure nothing will change regarding Saudi Arabia's oil policy," the Saudi source added. Top officials from the Organisation of the Petroleum Exporting Countries also expressed confidence that newly-appointed King Abdullah would stay the course he has charted over the past decade.
"I believe that there is confidence that Fahd's brothers, the leaders of Saudi Arabia, will adopt the same approach and the reaction of the markets to this sad news will calm down," Opec chief and Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah told satellite television Al Arabiya.
"The shock in the market because of the death of King Fahd will be temporary," said Iranian Oil Minister Bijan Zanganeh.
"Because Saudi's policy was conducted by Crown Prince Abdullah, there should be no change in the country's policy," he added.
Saudi Arabia would prefer to see US oil prices below $50 a barrel - a level regarded as too high for a healthy world economy.
To keep world markets sufficiently supplied, Riyadh is now pumping about 9.5 million barrels per day of crude and has vowed to keep spare production capacity of 1.5 million to two million bpd to meet any supply shortfalls.
"Saudi Arabia will continue to give its customers what they want under newly appointed King Abdullah," said a Saudi oil industry source.