Middle-east Arab News Opinion | Asharq Al-awsat

Oil at $71 after Hitting 9-Month High - ASHARQ AL-AWSAT English Archive
Select Page

LONDON (Reuters) – Oil hit a nine-month high above $71 on Thursday, a day after a report by the United Nations’ nuclear agency opened the way to tougher sanctions against Iran, the world’s fourth-biggest crude exporter.

London Brent crude, a more accurate indicator than U.S. oil, was up 43 cents at $71.03 a barrel by 1020 GMT, after hitting $71.29, the highest since August 28, 2006.

U.S. crude traded down 34 cents at $65.43.

Prices steamed higher on Wednesday after U.S. warships put on a show of force off Iran’s coast, coinciding with a report by U.N. monitors that Tehran had expanded its nuclear programme.

“That played into the price action although the report had nothing new in it. It was a knee-jerk reaction to the headlines,” said Mike Wittner of investment bank Calyon.

Lehman Brothers analyst Ed Morse doubted the U.S. exercises were a precursor to conflict. More probably they were designed to demonstrate U.S. willingness to defend the Strait of Hormuz, conduit for 40 percent of globally traded oil, he said.

The heightened Iran tension added to concerns about summer fuel supplies in the world’s top consumer the United States, where gasoline inventories have been rising but remain below average levels ahead of peak summer demand.

U.S. government data on Wednesday showed gasoline stocks increased by 1.5 million barrels last week, exceeding a 1.4 million barrels forecast. Despite record prices, year-on-year demand surged 1.2 percent over the past four weeks.

“The gasoline situation remains critical…Stocks stand at a seasonal low of 197 million barrels with the driving season officially set to kick off this weekend,” Citigroup said.

Militant attacks have cut supplies of gasoline-rich crude from Nigeria, the world’s eighth-largest oil exporter, by 695,000 barrels per day or almost a quarter of capacity.

“Two big things are keeping prices up, the Nigerian and gasoline situation,” said Tony Nunan of Mitsubishi Corp. “Inventories are too low for this time of year.”

Calyon’s Wittner said crude supplies in the Atlantic basin were relatively tight because of the closure of Nigerian oilfields and reduced North Sea loadings due to maintenance. At the same time, refineries were cranking up their operations.

Oil prices have more than trebled since the start of 2002 and hit a record $78.40 in July 2006. But the world economy has continued on a growth path. The president of one of the world’s top oil trading houses said he believed prices were nearing the point of demand destruction, however.

“My view is that we are pretty close to demand destruction — we are within 10-20 percent where we see reduced demand rates of growth,” said Ian Taylor, president of Swiss-based Vitol Group, at a conference in Singapore.