Oil flirts with new record high on Iran fears

By Luke Pachymuthu

SINGAPORE (Reuters) – U.S. oil climbed to within 10 cents
of a record high on Tuesday, extending gains above $70 a barrel
as fears grew of possible military action against Iran and a
major Nigerian supply outage dragged into a third month.

U.S. May crude futures rose 32 cents to $70.72 a barrel by
0734 GMT after hitting a high of $70.78, extending Monday’s
rally to stand at the highest since Hurricane Katrina battered
the U.S. Gulf Coast in late August last year, sending prices to
a $70.85 record-peak.

Futures for delivery in June, which will become the
front-month on Friday, are already trading at $72.32 a barrel.

London’s Brent crude surged to another all-time high for
the sixth consecutive day at $71.93 a barrel, before easing to
$71.83, up 37 cents.

Oil prices have soared more than $10, or 16 percent, over
the past four weeks, buoyed by a fresh infusion of fund
investment amid mounting concern over Iran’s stand-off with the
West and the possibility of U.S. military action.

Former Iranian President Akbar Hashemi Rafsanjani said on
Monday that Iran, which announced last week that it had
enriched uranium for use in power stations, would continue to
pursue its nuclear program. The West fears it is trying to
build an atomic bomb.

“The reality is that if there was any attack on Iran, there
would certainly be a major disruption to supplies,” said Gerard
Burg, an economist at the National Australia Bank (NAB).

The United States will meet with world powers on Tuesday to
consider targeted sanctions against Iran and has said it wants
the U.N. Security Council to be ready to take strong diplomatic
action, including measures such as a freeze on assets and visa
curbs.

The Security Council has told Iran to halt all sensitive
atomic activities and on March 29 asked its nuclear watchdog,
the Vienna-based International Atomic Energy Agency (IAEA), to
report on Iranian compliance in 30 days.

The New Yorker magazine reported this month that Washington
was considering using tactical nuclear weapons to knock out
Iran’s subterranean nuclear sites.

Iranian President Mahmoud Ahmadinejad said on Tuesday that
any aggressor would regret attacking the Islamic Republic.

“Today, Iran’s army is one of the most powerful armies in
the world and it will powerfully defend the country’s political
borders and the nation,” he said in a speech to troops.

NIGERIAN DISRUPTIONS PERSIST

Worries over the prolonged shut-in of more than 500,000
barrels per day (bpd) in OPEC-producer Nigeria because of
militant action have also supported oil prices, which are
nearing the inflation-adjusted peaks of over $80 hit back in
1980.

“I don’t see any rapid resolution in Nigeria, it’s a
political situation,” NAB’s Burg said.

The disruption to nearly a quarter of Nigeria’s
high-quality crude output — off-line since mid-February —
will become more critical as the U.S. driving season begins
next month, with analysts forecasting gasoline stocks in the
world’s top oil user having fallen by 2.2. million barrels last
week. ()

“Nigerian crudes are rich in gasoline, unlike crudes from
Saudi Arabia and the Middle East, which are sour, heavier and
harder to process,” said Tetsu Emori, chief commodities
strategist with Mitsui Bussan Futures.

Ministers from the Organization of the Petroleum Exporting
Countries, who will gather informally this weekend during an
International Energy Forum meeting in Doha, have said there is
nothing more the group can do to bring down prices.