Oil likely to rise on concern ‘fighting will reduce supply’

Gulf Times
August 6, 2006

NEW YORK: Crude oil may rise on concern that the three-week-old conflict between Israel and Hezbollah will spread in the Middle East, threatening supplies from the region that pumps almost a third of the world’s oil.

Sixteen of 40 analysts and traders surveyed by Bloomberg News, or 40%, said prices will rise next week. Eleven projected a decline and 13 said futures would be little changed. Last week 45% predicted an increase.

Israel ordered its troops further into Lebanon as it tries to stop rocket attacks by Hezbollah. Oil rose the first three days of this week on concern that Tropical Storm Chris would strengthen to a hurricane and head for oil platforms in the Gulf of MexiCo.

"Geopolitical factors and weather maintain the ability to emerge at literally any moment to cause supply worries,’’ said John Kilduff, vice president of risk management at Fimat USA in New York. "It’s almost not a matter of if or when, but what will drive prices higher.’’

Crude oil for September delivery rose $1.52, or 2.1%, to $74.76 a barrel this week on the New York Mercantile Exchange. Futures are up 22% from a year ago. Oil jumped to a record $78.40 a barrel on July 14.

"Risks resulting from the Lebanon and Israel situation may push crude oil prices toward $80 a barrel,’’ said Mikikaru Amano, an analyst at Taiheiyo Bussan Co in Tokyo.

Prospects for a diplomatic solution receded after Prime Minister Ehud Olmert said Israel wouldn’t agree to stop fighting until a UN-backed peacekeeping force large enough to contain Hezbollah is deployed.

Israeli forces began bombarding Hezbollah targets in Lebanon following the group’s July 12 kidnapping of two Israeli soldiers.

The definitive solution to the conflict is "the elimination of the Zionist regime,’’ Iranian President Mahmoud Ahmadinejad said on Thursday at a meeting of leaders from Islamic countries in Malaysia, according to Iran’s state-run news organisation, Irna.

"The existing discord in the Islamic world stems from plots masterminded by the Zionist regime,’’ he said.

Oil has jumped this year partly on concern that exports from Iran, which accounts for 5% of global production, may be cut because of a disagreement about the country’s nuclear programme.

The UN Security Council ruled on July 31 that Iran has until August 31 to stop uranium enrichment or face economic sanctions. The US government claims that Iran is enriching uranium to make nuclear weapons, while the country says it needs fuel for power plants.

Prices fell on Thursday after the US National Hurricane Center said that Tropical Storm Chris was weakening. Most Atlantic hurricanes occur in August and September. Last year Hurricanes Katrina and Rita damaged platforms in the Gulf of Mexico and shut as much as 30% of US refining capacity.

"Crude prices will fall next week after the dissipation of Tropical Storm Chris over the weekend without impacting oil facilities in the Gulf of Mexico,’’ said Victor Shum, a senior principal at energy consultant Purvin & Gertz Inc in Singapore. – Bloomberg