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US-Iran tensions drive oil to new highs

Drivers wait to fill their trucks with gasoline in Jakarta on Friday. Crude oil rose past US$92 for the first time before settling at an all-time closing high of US$91.86 in New York on Friday. PHOTO: AFP

World oil prices surged to historic highs on Friday, breaching US$92 for the first time in New York amid rising tension in crude-rich Iran and tightening US energy supplies.

New York's main futures contract, light sweet crude for delivery in December, soared to a record intraday high of US$92.22 per barrel before settling at an all-time closing high of US$91.86, up US$1.40 on the day.

In London, Brent North Sea crude for December delivery struck an all-time pinnacle of US$89.30 per barrel on Friday. It later settled at US$88.69, up US$1.21.

Crude futures have rocketed by about US$10 in a month and by US$30, or 50 percent, in a year.

"Supply tightness and developments surrounding Iran remain the focus of attention," Sucden analyst Michael Davies said on Friday.

The US on Thursday ratcheted up pressure on Iran over its nuclear drive and alleged backing for terrorism with a raft of new sanctions against the Islamic republic's military and banks.

Crude futures had leapt by more than US$3 on Thursday in reaction to the news, before extending their gains on Friday.

The White House meanwhile rejected any parallels between its Iran rhetoric and the run-up to the Iraq invasion of 2003, adding it had not ruled out the use of force but was "very hopeful" of avoiding war.

Sucden's Davies meanwhile added that oil prices were winning support from a weak US dollar, which makes commodities priced in the US currency cheaper for buyers using stronger units.

The dollar slumped to a record low against the euro on Friday after poor US economic data heightened expectations of a fresh cut to US interest rates next week, dealers said.

Others said oil prices were also being supported by OPEC's hesitance to increase production and rising tensions elsewhere in the Middle East.

Iraqi ministers held crisis talks on Friday seeking to persuade an increasingly impatient Turkey against launching military strikes against rebel Kurd bases in northern Iraq, which is an oil-producing region.

The talks broke up after 90 minutes, however, and it was not immediately known if and when they would resume.

However, Iraqi defense ministry spokesman Muhammed Askeri said the meeting had produced "positive" results.

Another factor pushing up oil prices are tight energy supplies in the US, the biggest consumer of energy.

The US Energy Information Administration (EIA) said on Wednesday that stockpiles of crude had plunged by 5.3 million barrels in the week ending Oct. 19. The market had expected a gain of 960,000 barrels.

Inventories of US distillates, which include diesel and heating fuel, sank by 1.8 million barrels last week. The data from the EIA confounded market expectations for a rise of 275,000 barrels.

Heating fuel stocks are a key market focus because demand usually surges during the northern hemisphere winter.

Compared with a year ago, distillates stocks are 7.6 percent lower and crude reserves are down 5.9 percent.

Eric Wittenauer at AG Edwards said the sharp moves were being accentuated by a rush of speculative money into the market.

"We think Wednesday's [inventory] numbers were the catalyst that brought the bulls and their sidelined money back into the picture," he said.

"The rejuvenated buying continues the uptrend seen since late August and builds to the momentum in the market. While the predominant rally has been rationalized by geopolitical events on the backdrop of tightening supplies, the latest surge, yesterday in particular, did have noteworthy geopolitical moves supporting the bulls. We wouldn't argue that supplies have tightened," Wittenauer said.

He said that while US crude oil stockpiles are at a nine-month low, "we don't think things are as dire as some would like to believe."
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