Oil rises on supply worries, Iran tensions

1/07/2008 - 19:36

By Matthew Robinson

NEW YORK (Reuters) - Oil prices rose on Tuesday on forecasts global supplies will struggle to keep pace with demand and concerns tensions between Israel and Iran could lead to a disruption of exports from the OPEC nation.

U.S. crude settled up 97 cents at $140.97 a barrel, after hitting an intraday record high of $143.67 a barrel on Monday. London Brent crude gained 84 cents to settle at $140.67 a barrel.

The International Energy Agency on Tuesday cut its global oil supply capacity forecast by 2.7 million barrels per day to 95.33 million barrels per day by 2012.

The cut offset downward revisions to expected demand as high prices bite into fuel use in some consumer nations, such as the United States.

"The IEA report today was a little bit bearish on the demand side, but on every other side it was a little bit bullish," said Christopher Bellew of Bache Financial.

The U.S. Energy Information Administration on Monday slashed U.S. oil demand figures for April, knocking oil from its record peaks. U.S. retail gasoline demand fell by 2.1 percent last week compared to a year ago, MasterCard Advisors said.

Concerns that tensions between Israel and Iran could disrupt supplies from the Organization of Petroleum Exporting Countries' second biggest oil producer also supported prices.

Speculation has mounted that Israel plans to attack Iran's nuclear facilities, which Tehran says are for purely peaceful purposes, following an Israeli air force exercise last month.

The U.S. State Department on Tuesday criticized reported comments by an unidentified senior U.S. defense official who told ABC News there was an increasing likelihood Israel would attack Iran over its nuclear program.

Iran's Revolutionary Guards has said if Iran were attacked it would impose controls on shipping in the Strait of Hormuz. About 40 percent of all seaborne oil trade passes through the Strait of Hormuz, according to the EIA.

OPEC President Chakib Khelil said on Tuesday the cartel did not have enough spare capacity to replace Iranian oil, if Tehran were to cut exports due to an attack.

Oil prices have jumped nearly seven-fold since 2002 as supplies struggle to keep pace with demand from emerging markets like China.

In addition, a surge in cash flows from investors seeking to hedge against the falling dollar and inflation have helped support a 40 percent rise in prices this year alone.

Ali al-Naimi, oil minister for OPEC kingpin Saudi Arabia, said on Tuesday his country was willing to provide more oil to markets, if needed, but he added it would not discount crude prices to encourage buying.

"We have said more than once we don't like these high prices ... We have nothing to do with where the price is today," Naimi said.

Analysts have said the kingdom, one of the few OPEC countries with substantial spare oil capacity, could help bring down the soaring crude market by cutting prices to a level that would encourage energy companies to build up inventories.

OPEC insists markets are well supplied and blamed rising crude prices on speculation.

Weekly U.S. oil inventory data, due on Wednesday, is expected to show a 100,000-barrel fall in crude stocks, a 200,000-fall in gasoline stocks, and a 1.9-million-barrel build in distillates.

(Reporting by Matthew Robinson and Robert Gibbons in New York. Ikuko Kao in London and Chua Baizhen and Luke Pachymuthu in Singapore; Editing by Christian Wiessner)

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