Crude Oil Rises to Record as Middle East Conflict Escalates

Please note that these posts aren’t meant to create anxiety or arouse a sense of apocalypticism (i.e., the world is ending very soon). Rather, peak oil is virtually guaranteed to create massive problems (and already has) with much of the third and developing world, which in turn means greater exploitation, greater nationalism and protectionist policies, an increasingly larger wealth distribution gap.

So, the same old story of the rich getting richer and the poor getting poorer – or even starving.

What are you doing about it?

July 14 (Bloomberg) — Crude oil rose above $78 a barrel for the first time as concern mounted that escalating violence in the Middle East, supplier of 30 percent of the world’s oil, may cut supply.

Israeli forces attacked Lebanon for a third day. Iran, embroiled in a dispute with the United Nations over its nuclear research, warned Israel against expanding the conflict. Chevron Corp. today said 40 workers in Nigeria were released after being held by kidnappers.

“I’m not going to say we’re going to $100 a barrel right away, but neither am I going to rule it out,” said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. “If events drag Iran into the situation and it deteriorates to the point that they want to block the Strait of Hormuz, and we get a hurricane, yes, we will see $100.”

Crude oil for August delivery rose $1.10, or 1.4 percent, to $77.80 a barrel at 10:33 a.m. on the New York Mercantile Exchange. Futures touched $78.40, the highest since trading began in 1983. Prices are up 5 percent this week, the biggest one-week gain since January. Oil is up 35 percent from a year ago.

“It will be hard to go home short when we are facing what may be the biggest threat to oil supplies in decades,” said Phil Flynn, vice president of risk management at Alaron Trading Corp. in Chicago.

Shorts are bets that prices will fall.

Oil prices jumped 27 percent this year amid concern Iran might cut exports because of efforts to curb its nuclear program. Iran has the second-biggest proved oil reserves, about 12 percent of the world’s total. Almost a quarter of the world’s oil flows through the Strait of Hormuz, a narrow waterway between Iran and Oman at the mouth of the Persian Gulf.

Nervous Traders

“Certainly if the Syrians or the Iranians were to somehow get involved in this fracas, things could get really ugly, really fast in terms of a commodity pricing standpoint,” said Ted Harper, who helps manage $8 billion in assets at Frost National Bank in Houston. “Given the geopolitical tensions, the wrong kind of event could easily move oil above $100.”

The conflict was sparked by the capture of Israeli soldiers by Hezbollah, a Lebanese terrorist group. Hezbollah has fired about 140 rockets into northern Israel in the past 48 hours, including one that reached Haifa late yesterday, the army said. A separate operation in the Gaza Strip began June 28 after a soldier was abducted by Palestinian groups, including Hamas.

“The high level of violence a few hundred miles from the oil fields makes traders nervous,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “I don’t think this is spreading but every possibility has to be accounted for.”

Message From Iran

Iranian President Mahmoud Ahmadinejad told Israel not to take action against Syria, Agence France-Presse reported, citing Iranian state television. “This will be the same as an aggression against the entire Islamic world,” Ahmadinejad told Syrian President Bashar al-Assad, according to the report.

“We are waiting for the situation to worsen,” said John Kilduff, vice president of risk management at Fimat USA in New York. “All fingers are pointing to Iran being behind the Hezbollah operation.”

Israel has “specific information” that Hezbollah plans to move the abducted soldiers to Iran, Israeli Foreign Ministry Deputy Director General Gideon Meir said yesterday.

“There is no shortage of rhetoric from either side, which is keeping us on edge,” Kilduff said. “If the kidnapped Israeli soldiers end up in Tehran, oil will get close to $100 a barrel.”

Nigerian Kidnapping

Chevron said the Nigerian contract workers were set free yesterday morning after being held overnight by the kidnappers. Conflict in Nigeria this year has cut oil output as much as 631,000 barrels a day. The nation accounts for about 10 percent of crude oil imports to the U.S., where refiners favor its low- sulfur grades because of their high gasoline yield.

Crude oil may rise from a record next week on concern the conflict in the Middle East will disrupt shipments from the region, according to a Bloomberg News survey. Twenty of 34 analysts and traders, or 59 percent, said prices will rise. Five projected a decline and nine said futures will be little changed.

Brent crude oil for August settlement rose 99 cents, or 1.3 percent, to $77.68 a barrel on the London-based ICE Futures exchange. Futures touched $78.03 a barrel, the highest since the contract was introduced in 1988.


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