Oil prices jumped back near US$74 a barrel yesterday, one day after Iran's supreme leader threatened that Tehran could jeopardize the world's oil supply if the West punishes it over its nuclear program.
Light, sweet crude for July delivery rose US$1.37 to US$73.70 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract had risen to US$72.33 last Friday following the kidnapping of eight foreigners working on a rig off the coast of Nigeria. The workers were released on Sunday.
July Brent crude futures on London's ICE Futures exchange rose US$1.54 to US$72.57 per barrel. Gasoline futures gained US$0.275 to US$2.225 a gallon (3.8 liters), while heating oil prices rose more than US$0.04 to US$2.0588 a gallon. Natural gas prices were up US$0.14 to US$6.764 per 23m3.
Iran's supreme leader Ayatollah Ali Khamenei told Western nations in a speech on Sunday that "If you make any mistake [punish or attack Iran], definitely shipment of energy from this region will be seriously jeopardized."
Khamenei said the US and its allies would be unable to secure oil shipments passing out of the Persian Gulf through the strategic Strait of Hormuz to the Indian Ocean.
Iran is the world's fourth-largest oil exporter and has the second-largest reserves in OPEC.
"The price surge is a knee-jerk reaction to the remarks made by Iran's supreme leader," said Victor Shum, energy analyst with Purvin & Gertz in Singapore.
He noted, however, that Iranian President Mahmoud Ahmadinejad had indicated a breakthrough in negotiations was possible, but rejected a precondition to talks. Contrary to Khamenei's remarks, other Iranian officials have repeatedly ruled out using oil as weapon.
The kidnappings in Nigeria also reminded traders that the nation's oil supply is not secure.
"These geopolitical events support high prices in the near term," Shum said.
Oil prices gained last week despite rising US inventories combined with an expected decision by the OPEC to leave its output quotas steady at 28 million barrels a day.
OPEC President Edmund Daukoru, who is also Nigeria's petroleum minister, yesterday called for the international community to work to solve the geopolitical tensions that contribute to high oil prices.
"Geopolitical tensions ... let the global community fix them," Daukoru said, emphasizing that his group has no political role.
"OPEC is not a political organization," he said. "OPEC is committed to stabilization of markets."
The current high prices are primarily caused by bottlenecks such as a lack of refining capacity, Daukoru said. Factors including inflexibility in gasoline specifications from country to country, while hedge funds also play a role, he said.
Daukoru said his main concern about high oil prices is that they will divert investment away from fossil fuels.
"I really can tell you that we are concerned with high oil prices," he said. "Because at a certain psychological level alternative competing fuels would start to divert investment that should have otherwise come into the oil sector."
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