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Oil rises above $142 a barrel

Analysts have also warned that prices may spike further amid persistent concerns over tight supply and tension in the Middle East.
AP | By Eileen NG, Kuala Lumpur, Malaysia
UPDATED ON JUL 02, 2008 11:49 AM IST

Oil rose above $142 a barrel on Wednesday in Asia, with analysts warning that prices may spike further amid persistent concerns over tight supply and tension in the Middle East.

"The bullish sentiment remains," said Victor Shum, an analyst with Purvin & Gertz in Singapore. "Until we see global demand easing, the supply side concerns will keep pricing bubbling." Midday in Singapore, light, sweet crude for August delivery was up $1.33 at $142.30 a barrel in Asian electronic trading on the New York Mercantile Exchange.

Prices rose as high as $143.33 a barrel on Tuesday, just 34 cents shy of Monday's trading record, before settling at US$140.97. Shum said the advance was fueled by an International Energy Agency report Tuesday confirming that global supplies will remain pinched despite near-record prices and falling demand in the US and Europe.

The IEA report said demand would rise most in developing countries, with Asia, the Middle East and Latin America accounting for nearly 90 per cent of demand growth over the next five years. IEA Executive Director Nobuo Tanaka said the world is experiencing "the third oil price shock," comparing the effects of today's prices with the oil crises that began with the 1973 Arab oil embargo and the 1979 revolution in Iran.

Ongoing rhetoric about an increasing likelihood possible attacks on Iran also spooked the market.

ABC News quoted an unnamed senior Pentagon official warning of an "increasing likelihood" that Israel will strike Iran's nuclear facilities before the end of the year. Such an attack could prompt Iran to retaliate, potentially disrupting oil shipments from the strategically vital Persian Gulf.

Iran is the world's fourth-largest oil producer and OPEC's second-largest exporter. About 40 per cent of global oil exported by tankers passes through the narrow Strait of Hormuz at the mouth of the Gulf.

State Department spokesman Tom Casey, however, has said he had "absolutely no information that would substantiate" the ABC report.

In Singapore, Shum said investors were awaiting the release of US government oil stocks data later Wednesday for further cues on oil prices.

Analysts surveyed by energy research firm Platts forecast that the weekly US inventory report would show crude oil stocks fell 1.2 million barrels last week and gasoline stocks fell 500,000 barrels. Distillate stocks, which include diesel fuel and heating oil, were forecast to have gained 2.4 million in the week ended June 27.

On Thursday, the market will be waiting to see whether the European Central Bank will raise its key interest rate and for the release of a US employment report. Both will dictate dollar movement and impact fuel prices, Shum said.

If the ECB raises rates, the dollar will slide against the euro and support oil prices. High unemployment data in the US would put pressure on the US Federal Reserve to cuts its key rate, which could also mean a weaker dollar, Shum said.

Crude shot up nearly 50 per cent in the first six months of 2008 in part because investors turned to commodities as a hedge against a falling greenback.

Trader Stephen Schorck and other analysts predicted that prices could soon reach $150 a barrel.

"As we look ahead to the third quarter the story remains, as long as the (dollar) fails to appreciate, energy will fail to depreciate," he wrote in a daily market newsletter. In other Nymex trading, heating oil futures rose 2.28 cents to US$3.9663 a gallon (3.8 liters), while gasoline futures rose 2.59 cents to $3.5393 a gallon. Natural gas futures jumped 12.5 cents to $13.63 per 1,000 cubic feet.

In London, Brent crude futures were up $1.55 at $142.22 on the ICE Futures exchange in London.

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