Oil Stays Above $72 a Barrel Amid Nuclear Tensions With Iran


Oil Stays Above $72 a Barrel Amid Nuclear Tensions With Iran
May 30 (Bloomberg) -- Crude oil stayed above $72 after climbing to a two-week high amid heightened tensions in the dispute over Iran's uranium enrichment program.
Iran will enter discussions ``without preconditions'', the country's foreign minister was quoted as saying by the Associated Press, softening the tone of earlier comments from a ministry spokesman that the Islamic Republic wouldn't halt its pursuit of nuclear technology.
Crude oil for July traded at $72.46, up $1.17, in electronic trading on the New York Mercantile Exchange at 13:50 p.m. in London after climbing as high as $72.73 a barrel, its highest level since May 11.
`Geopolitical instability has pushed the price up by about 80 cents this morning,'' said Veronica Smart, an analyst for the U.K.- based Energy Information Centre. ``And if there's a major hurricane season I don't think there'll be a price ceiling. The right combination of events would mean $100 a barrel isn't unrealistic.''
Foreign ministers of the five permanent members of the UN Security Council and Germany may meet in Vienna June 1 to consider a package of incentives to get Iran to abandon uranium enrichment, Agence France-Presse reported yesterday. Iran has completed tests of the nuclear fusion process, AFP said, citing the engineering chief of Iran's Atomic Energy Organization.
``Halting or stopping enrichment is not on the agenda,'' said Iran's Foreign Ministry spokesman, Hamid Reza Asefi, contrary to reports in the New York Times yesterday that the Islamic Republic was prepared to back down.
Russian Guarantee
Russia and its international partners are prepared to guarantee Iran's right to develop nuclear energy if the government eases international concern over its intentions and cooperates fully with the International Atomic Energy Agency, the Interfax news service said yesterday, citing Russian Foreign Minister Sergei Lavrov.
``These sort of geopolitical tensions are elevating prices above levels that we see as supported by fundamentals,'' said Gerard Burg, energy and minerals economist at National Australia Bank Ltd. in Melbourne. ``At the same time, though, those fundamentals are very strong.''
Oil prices reached a record $75.35 a barrel last month after militant attacks cut production in Nigeria, U.S. gasoline stockpiles declined for eight straight weeks and the U.S. sought Security Council sanctions against Iran.
Those risks have added a premium of as much as $30 a barrel to world oil prices, National Australia's Burg said. There is little prospect of prices easing, with summer gasoline demand getting under way in the U.S. and the hurricane season about to begin, threatening the disruption of supplies from the Gulf of Mexico.
Oil prices may rise above $80 and perhaps $90 if hurricanes cause serious damage, he said.
OPEC Gathers
The Organization of Petroleum Exporting Countries, which pumps almost 40 percent of the world's oil, is unlikely to change its oil quotas when members meet June 1, according to the oil ministers of Iran, Algeria and the United Arab Emirates.
Spare volume from OPEC members could triple to 6 million barrels a day by 2010 from 2 million barrels a day now, concentrated in Saudi Arabia, the U.A.E. and Nigeria, acting Secretary General Mohammed Barkindo said in an interview in Caracas yesterday.
``According to forecasts of expansions in a number of our member countries, this spare capacity is due to increase substantially by the end of the year, and this will continue in the medium term, between now and 2010,'' Barkindo said. Spending on exploration and production over that time will total $100 billion, he said.
Concern about high oil prices prompted hedge-fund managers and other speculators to make their biggest bet on rising prices in the week ended May 5, when they held a record net-long position in New York oil futures of 94,094 contracts.
Speculation Tempered
They have reduced their positions for three straight weeks as the UN's dispute with Iran dragged on and as U.S. refiners increased gasoline production to swell stockpiles before summer.
Net-long oil positions fell 30 percent to 54,600 contracts in the week ended May 23, a seven-week low, the U.S. Commodity Futures Trading Commission said May 26.
Fund managers reduced their bets on rising gasoline futures in the same period by 42 percent to 8,649 contracts, the lowest since January 2005, according to commission data.
``The whole commodity market generally has lost a bit of its speculative heat,'' Commonwealth's Thurtell said. ``The stock numbers aren't so bad.''
Brent crude oil for July settlement was at $71.86 a barrel, up $1.27, on the London-based ICE Futures exchange at 12:28 p.m. London time.
To contact the reporter on this story:
Grant Smith in London at Gsmith52@bloomberg.net
Last Updated: May 30, 2006 09:05 EDT