Oil exceeds US$134

LONDON - OIL yesterday rose by more than US$6 a barrel, exceeding US$134 and bringing gains in the last two days to US$12, as the greenback weakened further on a jump in the jobless rate in the United States.

Comments from Israel's transport minister that an attack on Iranian nuclear sites looked 'unavoidable', and a Morgan Stanley report predicting oil could reach a record high of $150 by July 4, also sent crude prices roaring upwards

'Attacking Iran, in order to stop its nuclear plans, will be unavoidable,' Israeli Transport Minister Shaul Mofaz was quoted as saying by the International Herald Tribune yesterday. This was the most explicit threat yet against Iran from Prime Minister Ehud Olmert's government.

Morgan Stanley, in its report, said: 'We are calling for a short-term spike in oil prices.'

US light crude for July delivery was up US$6.66 at US$134.45 a barrel by 9.25pm Singapore time, within a dollar of a record high.

Oil surged US$6 in after-hours trading on Thursday in the United States, erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand. Crude hit a record high of US$135 last month. London Brent crude rose US$4.59 to US$132.13.

'The comments from the head of the ECB triggered a very strong rally. Financial money is flowing back into oil and commodities. When the market is in such a strong rally, there is a tendency to read the bullish headlines rather than the bearish ones.' MR JAKOB, of Petromatrix, on the kind of news that tends to raise world crude oil prices

The US dollar fell further after figures showed a jump in the US unemployment rate to 5.5 per cent last month, higher than what analysts were expecting. The greenback fell by more than 1 per cent on Thursday after European Central Bank (ECB) president Jean-Claude Trichet said a number of policymakers wanted higher rates and a hike was possible as early as next month.

Investors have used oil and other commodities as a hedge against the weaker US dollar and inflation, as the housing crisis and high fuel prices batter the US economy.

Oil trading analyst Olivier Jakob of Petromatrix said: 'The comments from the head of the ECB triggered a very strong rally. Financial money is flowing back into oil and commodities,

'When the market is in such a strong rally, there is a tendency to read the bullish headlines rather than the bearish ones.'

Mr Jakob added that the remarks from the Israeli government gave added momentum to the rally.

The fall in the US dollar put longer-term worries about weakening oil demand on the backburner. These worries had been rekindled earlier this week when India and Malaysia decided to raise domestic fuel prices to cope with bulging subsidy bills. The International Energy Agency (IEA), an adviser to 27 industrialised countries, will issue its latest forecasts next week, and has said that it might further lower its projection for demand growth this year, after having already more than halved the figure to 1.03 million barrels per day.

But some analysts say subsidy cuts in Asia will not be enough to slow oil use.

Said BNP Paribas oil analyst Harry Tchilinguirian in London: 'World oil demand growth is still accounted for mostly by China, the Middle East and Latin America - and through the summer, there is no reason to expect a material slowdown in demand growth in these areas.'

Ahead of a weekend meeting of G-8 energy ministers to try and agree on the role of consumer nations in stemming oil's price rally, the IEA warned oil demand would rise by 70 per cent if governments continued with current policies.
REUTERS