Oil: Price rises as Israel calls up reservists

NEW YORK - Oil held above US$74 a barrel on Friday on concerns about escalating violence in the Middle East after Israel called up reservists in what could be a ground offensive against Hizbollah guerrillas.

Israel ordered several thousand reserve soldiers to report for duty as signs grew that the army may be preparing for an invasion of southern Lebanon.

Production snags at US refineries also supported prices.

US crude for September CLc1 settled up 16 cents to US$74.43 a barrel. London September Brent crude LCOU6 traded up 3 cents to US$73.75 a barrel.

"We're having a strong end to the week as usual, supported by refinery problems in the US and uncertainty over what may happen in the Middle East," said Christopher Bellew, an oil broker at Bache Financial in London.

Oil has slid from records above US$78 a barrel struck last Friday on fears the fighting between Israel and Hizbollah could spread, but remains up about 22 per cent this year.

US Secretary of State Condoleezza Rice will leave for the Middle East on Sunday and begin a round of visits there on Monday to seek to reduce fighting between Israel and Hizbollah.

Oil prices are sensitive to tension in the Middle East, which provides almost a third of the world's oil although neither Israel nor Lebanon are producers.

"Shorts may want to cover going into the weekend, where the possibility exists that the Israeli/Hizbollah conflict could take a turn for the worse," Man Financial said in a report.

"However, if the fighting remains relatively localized, values could open weak on Monday."

US President George W. Bush will meet with officials from Saudi Arabia, the world's top oil producer, on Sunday to discuss the Israel-Lebanon situation.

Refinery glitches

US refinery snags gave some support to prices this week, and traders were also wary of any weather-related disruptions as the Atlantic hurricane season starts.

Petrol supplies in the United States are a major concern for oil markets during summer, when demand peaks as motorists take to the road for holidays.

ConocoPhillips shut its 306,000 barrel-per-day (bpd) Wood River refinery in Illinois after a power cut due to storm damage. Valero Energy Corp. shut a petrol-making unit on Thursday at a Louisiana refinery for unplanned repairs.

"If there's any disruption to refineries, this will be a major concern," said Gerard Burg, energy economist at the National Australia Bank.

Tropical storm Beryl weakened and headed up the US Northeast coast on Friday, away from Gulf of Mexico refineries and oil fields damaged by hurricanes last summer.

Last year's hurricanes Katrina and Rita crippled US oil and gas infrastructure along the US Gulf Coast, causing oil prices to soar to then-record highs.

- REUTERS