Oil surges to new heights

ritaclin

http://www.theage.com.au/world/o ... 07-2n6e.html?page=2
Crude oil prices went on a record-setting surge today as fears of a new Middle East conflict were fanned by comments from a top Israeli official about Iran.

New York's main oil futures contract, light sweet crude for July delivery, leapt $US10.75 a barrel - its biggest one-day jump ever - to close at a record $US138.54.

In intraday trade and in record time, the benchmark contract crossed 137, 138 and 139 dollars for the first time and soared to an all-time high of $US139.12.

In London, Brent North Sea crude for July similarly smashed barriers on its way to a new intraday high of $US138.12 a barrel. It eased back to settle at a record $US137.69, up $US10.15.

Both futures contracts far exceeded their prior record highs set on May 22: $US135.09 in New York and $US135.14 in London.

Over the past two days, crude oil has leapt about $US16 as the market reacted to a new decline in the US dollar after the European Central Bank signalled an interest rate hike yesterday and the US reported a sharp rise in unemployment overnight.

Compounding the dollar squeeze were remarks by Israeli Deputy Prime Minister Shaul Mofaz reported by the Yediot Aharonot newspaper, analysts said.

"If Iran continues its nuclear weapons program, we will attack it," Mofaz told the paper, stressing that such an operation could only be conducted with US support.

"Other options are disappearing. The sanctions are not effective. There will be no alternative but to attack Iran in order to stop the Iranian nuclear program," Mofaz, who is also transportation minister, said.

Antoine Halff, an analyst at Newedge Group, said: "The Mofaz comments bring home the point that the dispute over Iran's nuclear program remains unresolved and that the risks of military confrontation are indeed increasing.

"This will likely be a growing source of market volatility until a solution to the dispute is found."

Wachovia Securities' Eric Wittenauer said that Mofaz's remarks "are the most explicit threat against Iran yet".
A former Israeli defence minister and armed forces chief of staff, Mofaz hopes to replace embattled Ehud Olmert as prime minister and at the helm of the Kadima party.

"Noting Olmert's political troubles, Mofaz's remarks may have been made for domestic consumption, particularly since he probably thinks he should be preparing for a run at the nation's top office," Wittenauer said.

Halff said the return of the Iranian risk premium "calls for a careful assessment of the potential oil supply impact of military strikes on Iran," the world's fourth-largest crude oil producer.

"The supply consequences of such a hypothetical development might not be as severe as they seem," the Newedge analyst added.

The US dollar continued to weaken against the euro, which firmed to above $US1.57, a day after ECB president Jean-Claude Trichet made hawkish comments on inflation after leaving rates unchanged as expected.

The greenback was further pressured by the US Labour Department report showing the US unemployment rate jumped unexpectedly by a half percentage point to 5.5 per cent in May, the steepest increase in more than two decades.

The US economy shed 49,000 jobs in May, almost twice the number of the prior month, marking the fifth monthly consecutive decline, the Labour Department data showed.

The weakening dollar boosts oil prices because it makes crude relatively cheaper for buyers using other currencies, analysts said.

Oil's surge also found support from investment bank Morgan Stanley's prediction today that light sweet crude will hit $US150 by July 4, the US Independence Day holiday, because of tight supplies.

AFP

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