Oil Prices Up Amid Continued Iraqi Unrest

By GEORGE JAHN

VIENNA, Austria – Oil prices rose Friday, with the kidnapping of a senior Iraqi petroleum industry official serving as a reminder that the killing of al-Qaida’s leader in Iraq did not mean the end of violence and instability in that country.

Oil analysts cautioned against reading too much into the U.S. air strike that killed Abu Musab al-Zarqawi, a Jordanian-born militant who led a campaign of suicide bombings, kidnappings and other violence across Iraq. Attacks on the country’s oil infrastructure, including pipelines, were not directly linked to his movement.

“We’re not out of the woods in regard to the insurgency in Iraq, and the market needs a couple of weeks, maybe a month, to gauge the situation before prices will ease,” said Mark Pervan, commodities analyst at Daiwa Securities in Melbourne.

Victor Shum, a Singapore-based energy analyst with Purvin & Gertz, described the market as “looking for clues, an indication of demand trends out of the United States and other large consumer markets in Asia.”

“In the short term I expect the market to stay in a very narrow band around US$70.”

After slipping in early trading, light, sweet crude for July delivery was up 29 cents to US$70.64 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange.

Brent crude was trading for US$69.57 – up 52 cents on London’s ICE Futures exchange.

Gasoline futures were up 2 cents to US$2.1225 a gallon (3.8 liters), while heating oil prices rose close to 2 cents to US$2.0050 a gallon. Natural gas prices slipped by just over 2 cents to US$6.170 per 1,000 cubic feet.

Prices rose amid news that gunmen kidnapped Muthanna al-Badri, senior Iraqi oil official in Baghdad, as he was returning home from work.

Vienna’s PVM Oil Associates said that – despite al-Zarqawi’s death, “the general level of political instability and violence as well as the absence of a new legal framework” will continue to keep oil-related investments – and crude exports – down in Iraq.

Additionally, the outlook regarding Iran’s nuclear program, which the West wants shut down, remains cloudy.

And gasoline traders are worried about this summer’s Atlantic hurricane season and the potential for powerful storms to damage important oil production and refining facilities across the Gulf Coast.

Earlier this week, oil prices declined on signs of easing diplomatic tensions between Iran and the West and word from Nigerian militants that they would release foreign hostages, as well as U.S. data showing rising crude and gasoline supplies.

The cost of crude is still about 30 percent more than a year ago, and that is a big reason why pump prices in the U.S. are hovering slightly below US$3 a gallon (3.8 liters), on average, and not likely to plummet anytime soon.

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Associated Press Writer Tanalee Smith in Singapore contributed to this report.