Oil: Prices jump after attack on US ships

LONDON - Oil climbed more than 3 per cent higher on Friday as rocket attacks in the Middle East and protests in Ecuador reminded the market how vulnerable supply lines are.

Oil tumbled earlier this week on signs record crude prices were firing inflation and dampening company earnings. But news on Friday that at least two missiles targeted, but missed, US ships docked in Jordan's port of Aqaba sent prices higher. Israel's city of Eilat was also hit.

Jordanian officials said one Jordanian soldier was killed and another injured in the attack. Jordan is not a crude oil exporter.

"The knee jerk reaction to this sort of headline is to think of the Middle East as a powder keg," said Deborah White, senior energy analyst at SG Commodities in Paris.

Niggling concerns over low petrol stocks in the world's biggest consumer the United States and a halt in Ecuador's oil exports had already set the market on a recovery track.

US crude settled up US$2.08 at US$65.35 a barrel. London Brent rose US$1.96 to US$64.36 a barrel.

Iran's decision to press on with its nuclear programme in defiance of the West was at the back of traders' minds. The move has put Opec's second biggest producer at odds with the United Nations nuclear watchdog and at risk of sanctions.

Prices have averaged over US$53 a barrel this year. In 1980, the year after the Iranian revolution, prices averaged an inflation-adjusted US$82 a barrel.

ON EDGE

While world crude oil inventories remain relatively robust, supply disruptions have traders on alert, including below-par production in India and the North Sea after outages last month.

Opec, pumping at its highest rate in a quarter century, has little spare capacity to make up any shortfalls.

Ecuador worsened the lost supply by halting exports of about 144,000 barrels per day, most of which go to the US West Coast, due to protests in Amazon provinces over the level of investment from foreign operators. The country is the second largest oil producer in South America.

The US West is well supplied with oil after a nearly month-long refinery disruption created a stock cushion.

But the market is sensitive to supply glitches. Ecuador's Economy Minister Magdelana Barreiro said the nation's oil output would return to normal only in November.

Although the peak-demand US driving season has only two weeks left to run, unusually low inventories of petrol and a series of refinery glitches remain in focus.

"Overall, the supply levels are tight and constantly bullish to the market," said Kazunaga Maeno, a risk management official with Mitsubishi Corp. in Tokyo.

Top financial energy trader Goldman Sachs said on Thursday it expected crude oil to average around US$60 a barrel in about five years, US$15 above its previous forecast.

Merrill Lynch hiked its long-term forecast by 40 per cent on Friday, but said it expected only US$42-a-barrel crude toward the end of this decade.

- REUTERS