Oil: Prices up 2pc on Iran

LONDON - Oil prices climbed 2 per cent on Monday on rising tension over oil-rich Iran's nuclear programme and continuing supply disruptions in Nigeria.

With European and Asian finance ministers predicting accelerating world economic growth, there was no sign slackening demand would ease prices from close to 25-year highs in real terms.

US crude surged $1.35 to $68.74 a barrel after touching a 10-week high near $69 a barrel, in sight of August's $70.85 record. London Brent settled up $1.46 to $68.75 a barrel after touching an all-time record for the contract of $68.99 a barrel.

"It's all more fodder for financial investors," said Mike Wittner of investment bank Calyon, part of Credit Agricole.

Oil has risen 11 per cent this year, continuing a rally that began at the start of 2002 with oil at $20. Investment money has poured into commodities. Gold matched a 25-year high, silver spiked to a 23-year peak and copper hit a record.

"Geopolitics is playing a key role in pension/mutual funds' motivation to invest in oil. They perceive geopolitics not as trading opportunities but as risks," analysts at SG CIB said.

The United States said on Sunday its priority was to seek a diplomatic solution to the dispute with Iran, but it did not rebuff a report in The New Yorker magazine that it had stepped up military planning.

The Washington Post reported the United States was studying options for strikes against Iran, the world's fourth-biggest oil producer, as part of a broader strategy of coercive diplomacy.

"The statement fell short of an outright denial, leaving market fears free to grow," Kevin Norrish, an analyst at Barclays Capital, wrote in a report.

European foreign ministers were to review their options for possible restrictive measures against Iran on Monday, including eventual financial sanctions.

"The market had become a bit too comfortable, expecting a diplomatic solution in Iran," said Tobin Gorey, commodities strategist at the Commonwealth Bank of Australia in Sydney.

Iran says it wants nuclear technology for power generation while Washington believes it is trying to build an atomic bomb.

Uncertainty about the return of around 500,000 barrels per day of high-quality Nigerian oil, shut since February by rebel attacks, is also supporting prices.

The loss of petrol-rich Nigeria oil looks likely to extend into the US summer driving season, the period of peak motor fuel demand in the world's top consumer.

Royal Dutch Shell, operator of about 90 per cent of the lost Nigerian output, was still unable on Monday to give the timing for the restart of its 115,000 bpd, offshore EA field.

Shell said it could begin assessing EA as early as this week.

More importantly for consumers, analysts say Shell's 340,000 Forcados onshore field and terminal is likely to be shut for some time amid militant threats of further violence.

"Even if EA comes back there will still be around 400,000 bpd of light sweet crude shut in. As refineries are ramping up and we're getting closer to the US driving season, that has to be bullish," said Calyon's Wittner.

European and Asian finance ministers meeting in Vienna at the weekend predicted world economic growth would accelerate to 4.5 per cent this year from 4.3 per cent in 2005, mostly driven by Asia and the United States.

"We are more optimistic, even if the oil price has increased further. We are happy because we are more resilient," European Economic and Monetary Affairs Commissioner Joaquin Almunia said.

- REUTERS