Oil hits record on Israel-Iran tensions

Iran Mania News

July 1, 2008

LONDON, July 1 (IranMania) - Oil rose more than $3 a barrel on Monday to a new record above $143, propelled by heightened market fears of conflict between Israel and Iran over Tehran's nuclear program, Reuters reported.

Prices later retreated from session highs, partly reflecting a rebound in the U.S. dollar versus the euro.

U.S. light crude was up $1.76 at $141.97 a barrel by 9:57 a.m. EDT, after a record high of $143.67 a barrel.

London Brent crude was up $1.91 at $142.22.

"There are many high-level geopolitical news items, particularly in the Middle East, that are pushing prices up," said Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank in Melbourne.

Iran's Revolutionary Guards have said Iran would impose controls on shipping in the Persian Gulf and Strait of Hormuz if it were attacked.

The Strait of Hormuz, a narrow waterway separating Iran from the Arabian Peninsula, accounts for roughly 40 percent of the world's traded oil flows.

Iran's foreign minister said on Sunday he did not believe Israel was in a position to attack his country over its nuclear program.

Iran's dispute with the West over its nuclear development program is just one of many factors behind oil's rise to record peaks.

Oil has risen more than 40 percent this year, extending a six-year rally, in response to the Middle East tensions, plus expectations that supply will struggle to keep pace with rising demand from emerging economies such as China and India.


Concern over long-term supply constraints have also pushed up the forward price of oil. Oil is priced between $135 and $139 a barrel out to December 2016.

The market, as a result, is sensitive to any supply disruptions.

A succession of militant attacks on Nigeria's oil facilities that have shut a fifth of the country's output since early 2006 has helped drive the market higher.

A flood of cash from investors seeking alternatives to sagging global equity markets and to hedge against inflation has also contributed to oil's rise.

"Demand from the investment side has been boosted by problems in the financial sector as well as a desire for diversification," said Frances Hudson, investment director, strategy at asset manager Standard Life Investments.

"Also, inflation concerns encourage investment in real assets such as oil and gold."

Inflation in the euro zone, for example, rose to a record high of 4 percent in June, data showed on Monday.

Some have blamed investor flows into oil or so-called speculative money for the market's rapid climb since the start of this year, others say it is more to do with the tighter balance between supply and demand.

The heads of some of the biggest oil companies, gathered at an oil conference in Madrid, said fundamentals were the main driver of prices.

Tony Hayward, chief executive of international oil company BP Plc said it was myth that financial investors were behind oil's rise. "This is a fundamental signal, this is not about speculation."