Published: July 01, 2008 11:13 am         

Oil passes $143 on Middle East tensions

Oil prices passed $143 a barrel Tuesday amid concerns about a potential conflict between Iran and Israel and a weakening dollar.

Also Tuesday, a report from the International Energy Agency saying crude supplies would remain tight despite record prices and reduced demand from industrialized countries also helped support prices.

EIA chief Nobuo Tanaka said the world was experiencing “the third oil price shock,” comparing the era to the 1970s oil embargo and the period following the Iranian Revolution.

However, Tanaka said this crisis differs because Western nations have already become much more efficent and oil is becoming more difficult to produce.

Echoing Tanaka, U.S. Treasury Secretary Henry Paulson said Tuesday in Berlin that there were no “obvious short-term solutions” to skyrocketing oil prices.

Light, sweet crude for August delivery rose $2.70 to $142.70 a barrel on the New York Mercantile Exchange.

On Monday, the contract soared to a record $143.67 a barrel. It later fell back to close at $140.00 on reports of weakening U.S. oil demand and end-of-the-quarter profit-taking by traders.

In London, Brent crude futures rose $2.65 to $142.48 on the ICE Futures exchange.

“You have supply-side concerns, such as the rhetoric on Iran, that will likely keep a floor under prices,” said Victor Shum, an analyst with Purvin & Gertz in Singapore. “I don’t see much resistance to $150, which could happen in the coming weeks.”

“There is no doubt that in both of our countries and throughout the world, we’re feeling the burden of high oil prices and high food prices...” Paulson said in Berlin after a meeting with German Economy Minister Michael Glos.

In its Medium-Term Oil Market Report on Tuesday, the IEA said demand would rise most in developing countries, with Asia, the Middle East and Latin America accounting for nearly 90 percent of demand growth over the next five years.

The energy agency’s executive director, Nobuo Tanaka, said market fundamentals, and not speculative investments, were behind high oil prices.

“OPEC production is at record highs and non-OPEC producers are working at full throttle, but stocks show no unusual build,” Tanaka said at the presentation of the IEA report in Madrid, Spain. “These factors demonstrate that it is mainly fundamentals pushing up the price.”

Oil also rose on expectations the European Central Bank will likely raise interest rates at its next meeting on Thursday, which would help strengthen the euro against the dollar, Shum said.

As the dollar has weakened, investors have been piling into oil contracts, betting that they will gain, thereby offsetting the dollar’s decline. Since the start of the year, crude has shot up nearly 50 percent.

The dollar fell to 105.43 yen from 106.10 yen late Monday, while the euro rose to $1.5767 from $1.5757. The dollar also was slightly weaker against the British pound.

Traders were still anxious about tension in the Mideast after the commander of Iran’s Revolutionary Guards warned that if his country is attacked, Tehran would strike back by barraging Israel with missiles and that it would control a key oil route in the Gulf.

Those comments, reported Saturday in Iran’s conservative Jam-e-Jam newspaper, came after Israeli military exercise over the Mediterranean Sea that was seen as sending a message to Iran to curb its nuclear ambitions.

Iran is the world’s fourth-largest oil exporter and OPEC’s second-largest exporter. About 40 percent of world oil exports pass through the Gulf.

Traders were also digesting news from the Energy Information Administration, which reported Monday that U.S. oil usage in April was lower than previously estimated, falling by 4.2 percent to 19.768 million barrels per day from 20.631 million. That was 3.9 percent lower than in April 2007 and the lowest level for the month in six years.

“We’re starting to see demand destruction in the U.S., but in China and other developing countries, we still see demand growth,” Shum said. “It could take several months before recent fuel price rises in developing countries start to slow oil demand in those places.”

In other Nymex trading, heating oil futures were up 7.84 cents to $3.9884 a gallon (3.8 liters) while gasoline prices rose 5.69 cents to $3.5560 a gallon. Natural gas futures jumped 13.6 cents to $13.554 per 1,000 cubic feet.