Oil soars to record near US$146

Funny how this happens right before the 4th of July.


Oil briefly soared to a record near US$146 a barrel Thursday, but fell back after the European Central Bank held back from signaling further rate hikes and rising unemployment in the United States underlined the fragility of the economy there.

Earlier in the session, prices were lifted to new highs by concerns over a larger-than-expected drop in U.S. oil stockpiles, the threat of violent conflict with Iran and comments by Saudi Arabia's oil minister suggesting his country had no immediate plans to boost production.

By the afternoon in Europe, light, sweet crude for August delivery was up 51 cents on the day to US$144.08 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it rose as high as US$145.85 a barrel, a new trading record.

On Wednesday, the contract set a new closing record for floor trade at US$143.57 — a full US$2.60 above the previous close.

The latest spike means a barrel of crude has gone up by more than 50 percent since the end of last year, when oil was going for US$96 a barrel.

In London, Brent crude futures rose to a trading record of US$146.69 a barrel on the ICE Futures exchange before retreating to US$144.68, up 42 cents.

The push above US$145 a barrel was seen as the last technical barrier to prices hitting US$150, in what analyst Olivier Jakob of Petromatrix in Switzerland called "the Morgan Stanley self fulfilling prophecy."

In early June, a prediction by Morgan Stanley analyst Ole Slorer that oil prices could reach US$150 by the July 4 weekend caused the Nymex contract to jump nearly US$11 in a single day.

Thursday's ECB decision to raise interest rates in the 15-nation euro zone by a quarter percentage point to 4.25 percent already had been priced in by the markets. Comments by ECB president Jean-Claude Trichet suggesting that further rate cuts — also expected by the market — were far from certain helped strengthen the dollar.

When the dollar weakens, it usually drives oil prices higher as investors turn to commodities as a hedge against a falling greenback.

After Trichet's comments, the euro was trading at US$1.5754, down from 1.5885 on Wednesday. The U.S. currency also rose to 106.64 Japanese yen, from 106.01 yen the day before.

Speaking Thursday in Madrid, Saudi Arabia's oil minister, Ali Naimi, left the door open for increased output, but said the kingdom's oil customers were satisfied and that no production growth was planned for now.

The Energy Department's Energy Information Administration said Wednesday crude oil supplies fell by 2 million barrels last week, or about 800,000 barrels more than analysts surveyed by the energy research firm Platts had predicted.

However, the report offered a mixed picture of energy use by the world's thirstiest oil consumer. Gasoline supplies unexpectedly grew by a considerable amount, and demand continued to slide — suggesting record fuel prices are prompting a shift in American driving habits.

Ongoing rhetoric about possible attacks on Iran, the world's fourth-largest oil producer and OPEC's second-largest exporter, also left the market jittery.

Traders are worried Tehran could try to halt shipments and seize control of the strategically important Strait of Hormuz if attacked by Israel or the United States. About 40 percent of the world's tanker traffic passes through the Middle Eastern choke-point.

Iran's foreign minister did not rule the possibility that Iran could try to restrict oil traffic in the strait if the country was attacked.

"In Iran we must defend our national security, our country and our revolutionary system and we will continue to do so," Foreign Minister Manouchehr Mottaki said in an interview with The Associated Press in New York.

Mottaki said he does not believe Israel or the United States will attack, however, calling the prospect of another war in the Middle East "craziness."

A senior U.S. military commander vowed to ensure that the strait remains open.

"We will not allow Iran to close it," said Vice Adm. Kevin Cosgriff, commander of the 5th Fleet based in Bahrain, after talks with naval commanders of Persian Gulf countries in the United Arab Emirates.

The saber-rattling has left energy traders on edge as they try to ascertain the likelihood of a Middle East flare-up and the effect it could have on the world's already tight supply of oil.

In other Nymex trading, heating oil futures added 0.3 cent to US$4.1062 a gallon (3.8 liters), while gasoline futures rose 1.96 cents to US$3.5690 a gallon. Natural gas futures gained 0.1 cent to US$13.39 per 1,000 cubic feet.