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Oil Prices Leap to a Three-Month High

Posted on: Tuesday, 17 January 2006, 12:00 CST

By GEORGE JAHN

VIENNA, Austria - Crude oil prices jumped to a three-month high above $65 a barrel Tuesday as Iran's nuclear ambitions and unrest in oil-rich Nigeria kept traders edgy over potential supply snags.

Analysts said energy futures jumped on concerns that the U.N. Security Council will consider sanctions against Iran because of its nuclear program, and after Iran's warning that any sanctions imposed could send oil prices even higher.

"The Iranian nuclear issue is driving the market. Traders are short-covering because they know if something happens in Iran the market would be in confusion," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. "The issue poses a threat of supply disruption in a major oil-producing country."

Analysts also said recent attacks on oil facilities in Nigeria - Africa's leading oil exporter and the fifth-biggest source of U.S. oil imports - were supporting crude's rise.

Negotiators were working Tuesday to free four foreigners held hostage in the nation's southern oil region as militants claiming to hold the captives said they would target oil installations if their demands were not met within days.

Light sweet crude for February delivery rose $1.13 to $65.05 a barrel in midday trade on the New York Mercantile Exchange, a level not seen since early October. The market was closed Monday for the Martin Luther King Day holiday.

In London, March Brent crude on the ICE Futures exchange rose 99 cents to $64.17 a barrel.

Heating oil futures gained 5.8 cents to $1.773 a gallon while gasoline futures advanced 6.39 cents to $1.795 a gallon. The surge in refined product prices was a reflection of the higher oil price, as well as a reaction to a reported shutdown of a New Jersey refinery.

Natural gas futures also rode higher on the back of the oil-market rally, gaining 33.9 cents to $9.13 per 1,000 cubic feet.

Russia and China on Monday joined the U.S. and its European allies in demanding that Iran fully abandon its nuclear program. The powers called for an emergency board meeting of the International Atomic Energy Agency on Feb. 2-3 to discuss the issue.

The West fears Iran intends to build an atomic bomb, but Iran claims its program is intended only to produce electricity.

Iran is the Organization of Petroleum Exporting Countries' second-largest producer and sanctions targeting its oil and gas exports could disrupt the world's energy markets.

In Nigeria, armed fighters attacked a Royal Dutch Shell PLC oil platform at dawn on Sunday, damaging the facility and killing at least one person in the third assault on its facilities in less than a week.

Shell says recent violence has caused its consortium to cut 106,000 barrels in daily crude production. Nigeria produces about 2.5 million barrels a day.

Meanwhile, the International Energy Agency said Tuesday reduced its forecast for non-OPEC supply growth by 100,000 barrels per day, but left its forecast for world oil demand this year unchanged at 85.1 million barrels a day, up more than 1.8 million barrels a day against last year.

The group also projected that Chinese oil demand bounced back from weakness late last year, with an expected near-7 percent growth in December.

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Associated Press Writer Gillian Wong in Singapore contributed to this report.

Source: Associated Press/AP Online

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