Oil prices crept lower on Tuesday after rallying to new record heights the previous day, unnerved by the death of Saudi Arabia?s King Fahd and outages at several refineries in the United States.

U.S. light sweet crude for September delivery was down 21 cents to $61.36 a barrel in Asian trade, after hitting a record-peak at $62.30 a day earlier.

Prices ended up $1.00, or 1.7 percent, on Monday after King Fahd died, bringing an end to his 23-year reign over the world?s top oil exporter. London Brent crude lost 19 cents to $60.25 a barrel, after also jumping to record-highs at $60.79.

Crown Prince Abdullah, who has been in charge of the kingdom since Fahd suffered a stroke in 1995, was swiftly appointed monarch, ensuring a smooth transition and a continuance of its close alliance with the West.

Saudi officials were quick to stress that King Fahd?s death would not lead to any changes to the kingdom?s oil policy, and King Abdullah offered a further sign of stability by retaining all ministers.

The kingdom, a leading member of the OPEC cartel, is pumping about 9.5 million barrels per day (bpd) of crude and has vowed to keep spare production capacity of 1.5 million to 2.0 million bpd to meet any supply shortfalls.

Yet, traders feared that Fahd?s death might stir an era of uncertainty over Saudi Arabia?s longer-term policies as the new king is at least 80 years old, opening the way for a succession struggle between conservatives and reformers.

Strong distillate demand

Worries over U.S. policy toward Iran also kept markets on tenterhooks after Tehran, in defiance of EU warnings, said on Monday it had begun preparations to resume nuclear work that the West suspected could help it build an atom bomb.

Political worries in the Middle East underscored the market?s fragility at a time when U.S. demand is growing strongly, testing refiners? ability to supply enough consumer fuels.

Exxon Mobil Corp. shut down its 235,000-bpd refinery in Joliet, Illinois, on Saturday night due to a failure in its cooling water system and was assessing options to restart it later this week, the company said on Monday.

BP Plc. also shut down a gasoline-producing unit over the weekend at its giant Texas City refinery, the third-largest in the United States and the source of 3 percent of its gasoline.

Coming barely two days after a fire late last week forced the refinery to shut down a 60,000-bpd hydrotreating unit, the latest glitches added to worries that U.S. refineries might not be able to keep pace with growing products demand.

U.S. gasoline demand is some 2.4 percent higher than a year ago and distillate demand is running strong at 3.6 percent. Refineries cranked up production and cause crude supplies to drop by 1.0 million barrels.

But analysts said while problems at refineries just as the week was ending might have curbed production, distillates stocks could have risen by 1.8 million barrels as Gulf Coast plants stepped up runs.

Maryelle DEMONGEOT © Reuters