Oil prices were firmer in Asian trade yesterday, hovering within sight of record highs as violence raged in the Middle East and concerns mounted about a wider conflict there, dealers said.
At 2:20pm, New York's main contract, light sweet crude for delivery next month, was at US$77.54 per barrel, up US$0.51 from US$77.03 in late trades in the US on Friday.
The contract struck an all-time high of US$78.40 on Friday.
Brent North Sea crude for next month was at US$77.94, up US$0.56. Brent had hit a record US$78.03 on Friday.
Dealers said oil looked set to break the US$80 barrier, with some even talking about the possibility of US$100 as the Group of Eight (G8) major powers warned Sunday of "serious" challenges posed by rising crude prices.
"We have to deal with serious and linked challenges such as high and volatile oil prices," the G8 leaders said in a statement adopted at their summit in Saint Petersburg, Russia.
Leaders of the world's most powerful nations pledged to promote "open, transparent" energy markets while vowing to pursue development of alternative energy sources, including nuclear power.
Oil prices have spiked since Israel launched a wide military offensive across Lebanon last Wednesday, touched off by attacks on the Jewish state by the Hezbollah militant Islamic group and the abduction of Israeli soldiers,
"This Israel-Hezbollah conflict is a sentiment issue for the oil market," Tobin Gorey, commodity strategist at the Commonwealth Bank of Australia said.
"It does not [directly] affect oil prices as neither Israel nor Lebanon produce oil but it creates fear over geo-political instability in the Middle East," he said.
Lebanon was hit by a fresh wave of air raids yesterday after Israel vowed a fierce response to a deadly Hezbollah rocket attack deep inside its territory.
"Oil prices are very sensitive to tensions in the Middle East, the source of more than a fifth of world oil output," Sucden analyst Michael Davies said.
Adjusted for inflation, current oil prices still remain below levels reached after the 1979 Iranian revolution of about US$85 in today's money but are getting perilously close to the level.
Dealers said supply concerns over Iran's nuclear program, unrest in oil-producing Iraq and Nigeria, as well as the US hurricane season also supported price gains.
"On top of that, demand usually slows on high oil prices, but that doesn't seem to be the case now," Gorey said.
"There are a lot of things going on right now that could increase oil prices," he said.
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