Oil: Prices inch toward record

NEW YORK - Oil prices inched closer to a record on Tuesday as supply threats in major producers Iran, Nigeria and Iraq triggered a fresh wave of fund buying.

Continued strong demand growth in the United States and China -- the world's two largest energy consumers -- also added to concerns that the oil industry may struggle to match voracious consumption.

"It is pretty clear that we can break US$70 without too much problem," said Deborah White, an analyst at SG CIB in Paris.

US crude futures rose 24 cents to US$68.98 a barrel, bringing prices within striking distance of the all-time high US$70.85 hit last August after Hurricane Katrina leveled US oil platforms and refineries.

The price of US crude for delivery later this year has already vaulted over the psychological US$70 a barrel mark, with dealers anticipating potential supply disruptions and an uptick in demand growth for the summer driving season.

Oil has climbed 13 per cent since the start of the year, propelled by concerns over supplies from Opec producers Iran, Nigeria and Iraq.

Iran is at odds with the West over its atomic programme, rebels have knocked out nearly a quarter of Nigeria's output and Iraq's exports are at their lowest since the US-led invasion.

The recent surge in oil prices adds to a rally that began at the start of 2002 with oil at US$20 a barrel. Investment money has poured into commodities. Gold hit a 25-year high and silver set a 23-year peak Tuesday.

"The ultimate deterrent for the oil market is when the price becomes too expensive for people to fill their tanks," said Ian Henderson, fund manager at JP Morgan Fleming.

"I think they will continue to carry out their travel plans even with oil prices as high as US$100 a barrel." The world's economies are racing ahead despite energy costs at their highest in real terms for a quarter of a century.

"With the US and global economies still showing strong signs of resilience, expectations for oil demand growth in 2006 and 2007 remain robust," Deutsche Bank said in a research note. "The United States and China account for a substantial proportion of the total world oil growth in 2006 and 2007." London Brent crude settled up 62 cents to US$69.37 a barrel.

Former Iranian President Akbar Hashemi Rafsanjani told Kuwait's KUNA news agency Tuesday that Iran had begun producing enriched uranium -- a direct challenge to the United States and the United Nations' nuclear agency.

US President George W. Bush has dismissed reports of plans for military strikes on the world's fourth biggest oil exporter as "wild speculation" but the market remains nervous.

"The market is not really factoring in the true impact of military action but the mere mention of it sends prices higher," said Gerard Burg, economist at the National Australia Bank.

With the loss of Nigerian oil, a high yielder of petrol, set to encroach on the US summer driving season, traders are nervously eyeing falling fuel supplies, hit by high demand and extensive refinery maintenance to comply with cleaner US fuel standards.

Analysts polled by Reuters predict US petrol inventories fell last week by an average 2.4 million barrels, extending a 14.1 million-barrel fall in the previous five weeks to March 31, in US government data to be released Wednesday.

- REUTERS