LONDON (Reuters) – Oil rose more than $1 on Monday as escalating tensions between Israel and Iran stoked supply concerns and as Saudi Arabia’s promise to pump more oil if needed failed to win over a skeptical market.
A ceasefire by rebels halting attacks on facilities in the Niger delta barely tempered the rise after two new attacks over the past week knocked out another tranche of Nigerian output.
U.S. light crude for August delivery rose $1.76 to $137.12 a barrel by 5 a.m. EDT, reversing an early decline of more than $1. London Brent crude was $1.99 up at $136.87.
“The market took the opportunity to take profits earlier on Saudi Arabia’s promise… but realistically that alone is not enough to calm the market,” said Mark Pervan, senior commodities analyst at Australia and New Zealand (ANZ) Bank in Melbourne.
Oil prices hit a record near $140 a barrel last week and have doubled from a year ago, stoking inflation and triggering protests worldwide. A meeting of top energy policy makers in Jeddah at the weekend offered little hope for a quick fix.
Top exporter Saudi Arabia confirmed it will lift production for a second time to 9.7 million barrels per day (bpd) in July, its highest in more than 30 years, and pledged on Sunday to pump even more if the market demanded it.
It detailed plans to boost capacity to 15 million bpd when future demand warrants the investment, in a bid to soothe growing fears that the world is running out of oil, but those measures failed to allay fears in an anxious market.
“The short-term supply situation is still very tight and tensions between Iran and Israel are back in focus,” Pervan said.
Iran would give a “devastating” response to any attack on the country, its defense minister was quoted as saying on Sunday, the latest in an ongoing war of words centered on Tehran’s nuclear program.
The New York Times quoted U.S. officials last week as saying Israel had carried out a large military exercise, in an apparent rehearsal for a potential bombing of Iran’s nuclear facilities.
Energy experts are concerned any conflict in Iran could lead to a shutdown of the Strait of Hormuz, a waterway separating Iran from the Arabian Peninsula through which roughly 40 percent of the world’s traded oil is shipped.
Despite world powers’ offer of economic incentives to coax Tehran into halting it nuclear activities, Iran is pressing on with uranium enrichment “non-stop”, its envoy to the U.N. nuclear agency was quoted as saying on Saturday.
Sunday’s emergency meeting in Jeddah infused new urgency to the ongoing dialogue of major producers and consumers, participants said, but they acknowledged a lack of hard measures for taming oil’s rally could leave the market underwhelmed.
“The meeting was a bit disappointing,” said a European diplomat. “The only producer that came up with any concrete proposals was Saudi Arabia — all the other producers just made bland statements about future capacity plans.”
OPEC President Chakib Khelil said on Monday oil producers could not pump more without demand for extra supply, and at the moment that demand did not exist.
“You know that demand has shrunk this year and continues to shrink, and so demand is not there to absorb supplementary production,” said Khelil, who is Algeria’s energy minister, in an interview on Algerian state radio.
In the end, Jeddah was overshadowed by news from Nigeria, where militants in the southern Niger Delta announced a unilateral ceasefire on Sunday, the end of a week that saw two new attacks knock an additional 340,000 bpd offline.
Attention is likely to shift to new indicators of the economic health of the United States, which consumes nearly a quarter of the world’s oil. Consumer confidence for June and the Richmond Fed’s manufacturing report are both due at 2 p.m. EDT.