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Oil Prices Briefly Rise Above $61 a Barrel

Posted on: Monday, 1 August 2005, 00:00 CDT

SINGAPORE - Crude oil futures briefly rose above $61 a barrel Monday after Iran threatened to restart its nuclear enrichment program, sparking concerns that tension between Tehran and Western nations could disrupt oil supplies from OPEC's second's largest exporter.

Traders were also worried about the impact on supply caused by two U.S. refinery fires late last week at a BP Plc Texas City plant and a Murphy Oil Corp. refinery in Louisiana. Another BP fire at its North Sea oil field, Shiehallion, occured late Friday.

Midmorning in Singapore, light, sweet crude for September delivery rose 28 cents at $60.85 on the New York Mercantile Exchange, after climbing as high as $61.02 in earlier Asian trading. The contract had touched $61.05 on Friday, the highest in more than two weeks, before closing at $60.57, up 63 cents on the day.

Oil futures hit an intraday record of $62.10 a barrel on July 7. Prices are around 40 percent higher than year-ago levels but would need to reach $90 to reach the all-time inflated adjusted high set in 1980.

Heating oil was up by more than a penny at $1.6895 a gallon n supply caused by two U.S. refinery fires late last week at a BP Plc Texas City plant and a Murphy Oil Corp. refinery in Louisiana. Another BP fire at its while gasoline gained one and a half cents at $1.741 a gallon.

Iran on Sunday threatened to restart uranium reprocessing work if negotiators from Britain, France and Germany do not immediately offer a promised package of incentives to entice Tehran to freeze its nuclear program.

"Europe has only a few hours, up to when the council meets, (to file its) proposal. If it does not arrive by that time, the council will discuss breaking the ice" on Iran's stalled nuclear program, said Ali Agha Mohammadi, a spokesman for Iran's Supreme National Security on Sunday.

Traders were concerned continued tensions between Iran and the European governments could push the hardline government to suspend oil exports - of 4 million barrels daily - to get what it wants. The EU had been expected to present the incentive package to Iran by the start of August, but had requested a delay until Aug. 7.

"If supply from Iran is suspended because of geopolitical developments, it will be a severe threat to the world's oil supply," said senior commodities strategist Tetsu Emori of Mitsui Bussan Futures in Tokyo, Japan. "It's not a small issue."

Analysts believe the world's excess capacity is limited, which means producer nations are not likely to meet demand if supply is disrupted from geopolitical tensions or other unplanned outages, such as weather-linked shutdowns.

Strikes, terrorism-related problems, oil disputes in Russia, Venezuela, Nigeria, Saudi Arabia and Iran helped push prices upward all of last year.

Tehran halted uranium enrichment in November under international pressure led by the United States, which suspects the country's nuclear program is aimed at making weapons. Iran maintains its program is peaceful.

Meanwhile, traders continued to watch for news of the impact on production caused by fires at two U.S. refineries last Thursday. BP has said gasoline output at its Texas City plant was cut by 35,000 barrels a day.

"There's uncertainty how long BP's Texas refinery would be shut, or how bad it is affecting U.S. gasoline supply during the summer driving season," said Ken Hasegawa of Tokyo-based brokerage firm Himawari CX.

Investigators said the blast at the Texas City refinery, which processes 433,000 barrels of crude oil a day, was caused by a pipeline failure. It is the third largest refinery in the country.

BP also shut the 120,000 barrel-a-day oil field in the North Sea, though the damage caused by the blast was expected to be minimal.

Source: Associated Press/AP Online

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