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Oil prices near record highs on supply fears

Traders work the oil futures pit at the New York Mercantile Exchange on Monday. PHOTO: AP

Oil prices approached record highs yesterday amid heightened supply worries linked to disruptions in Nigeria and international tensions over Iran's nuclear program.

Analysts said oil prices were likely to climb as long as these geopolitical risks posed threats to supply at a time when global demand remains strong and supplies remain tight.

Light, sweet crude for delivery next month rose as high as US$70.78 a barrel -- US$0.07 short of tying the intraday record high of US$70.85 set on Aug. 30, when Hurricane Katrina lashed the US Gulf Coast and wreaked havoc on the region's oil industry.

Midafternoon in Singapore, oil was trading at US$70.70 a barrel in electronic trading on the New York Mercantile Exchange, up US$0.30 from Monday, when the contract jumped US$1.08 to a record close of US$70.40 a barrel.

Crude oil production is only barely keeping up with rising global demand, leaving a slim margin for error if there is a prolonged supply interruption, experts say.

"Oil prices are closing in on the all-time high ... And there are numerous places around the globe where turmoil could spring up and lead to small disruptions in global flow and supply. Small disruptions can quickly escalate to big number problems," wrote Phil Flynn, an analyst at Alaron Trading Corp in Chicago, in a research note.

Meanwhile, Brent crude for June delivery at London's ICE Futures exchange traded at US$71.79 a barrel, up US$0.33 from Monday's settlement. The contract earlier touched US$71.93 a barrel, setting a fresh all-time high.

Traders are anxious that that US-led efforts to stop Iran, OPEC's second-largest member, from pursuing a suspected nuclear weapons program would lead to a disruption in Persian Gulf supplies.

And in Nigeria, militant attacks have led to the stoppage of more than 25 percent of the country's crude oil production.

"The Iran issue is the driver of the day, the extra factor causing the run-up in prices, but the basic thing underlying the industry is that global demand remains very strong," said Tobin Gorey, a commodities strategist at the Commonwealth Bank of Australia in Sydney.

"The market is still reacting to the Iran issue as we saw last week that the war of words got stronger, there's a sense that things are moving faster, and that's pushing the price higher still, while Nigeria remains on the back-burner," Gorey said.

Recent data showing China's economy expanded over 10 percent in the first quarter of this year could have spurred buying, Mike Fitzpatrick, a vice president with brokerage Fimat Futures in New York, wrote in a daily note.

Another expert said prices were reaching new highs now because gasoline inventories in the world's largest energy consumer, the US, have been shrinking at a time when the country is gearing up for the peak demand summer.
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