Oil: Supply concerns keep price up

Oil rose to about US$74 a barrel on Monday after a small leak on a spur of Russia's largest oil export pipeline to Europe added to concerns about supply losses in Nigeria and violence in the Middle East.

A branch of Russia's Druzhba pipeline supplying Lithuania suffered a leak at the weekend but had since resumed operations. Renewed tension over major oil exporter Iran's nuclear programme also pushed prices up.

"Today's a good illustration of what the market's been driven by recently, which is actual supply disruptions and fears of disruptions," said Craig Pennington, global energy portfolio manager at Schroders. "It's just nervous."

London Brent crude was up US$1.07 to US$74.46 a barrel at 1615 GMT. US crude was up 51 cents at US$73.75.

Druzhba is the largest of Russia's export pipelines to Europe and has a capacity of up to 1.4 million barrels per day, according to the US Energy Information Administration.

The leak occurred on July 29 in the Bryansk region of western Russia bordering on Belarus, where the pipeline splits into two branches with the bigger section heading to Poland and Germany and the other to Lithuania.

Exports to Lithuania were disrupted when 48 cubic metres of crude leaked out.

The leak had been patched up and the line began working again on Monday morning, Russia's Emergencies Ministry and the Druzhba pipeline operator told Reuters.

NIGERIA, IRAN

US crude is within sight of a July 14 record high of US$78.40, boosted by supply losses in Nigeria, Iran's nuclear row with the West and fears that the conflict between Israel and Hizbollah in Lebanon could spread.

Oil prices are sensitive to real and threatened supply breaks because rising world demand has used up much of the reserve output capacity among the world's oil producers.

"In the face of a few hours, you have a real supply disruption, which is the Druzhba pipeline, and then you have a perceived one, which is the Iranian issue," Pennington said.

The UN Security Council on Monday demanded Iran, the world's fourth-largest oil exporter, suspend its nuclear activities by the end of August or face the threat of sanctions.

The dispute has helped to power oil's 21 per cent rally in New York this year as it has raised worries the row could cut supply from the world's fourth-largest oil exporter.

Prices also rose as Israel planned to step up its offensive against Hizbollah guerrillas until an international force deploys in south Lebanon, despite calls for an immediate truce.

The 20-day conflict has worried oil traders because the Middle East pumps almost a third of the world's oil, though neither Lebanon nor Israel are producers.

US Secretary of State Condoleezza Rice said earlier on Monday she expected a ceasefire could be forged this week.

Also boosting prices, Royal Dutch Shell lifted an estimate of supply shut down in Nigeria, Africa's top producer. In all, a quarter of Nigeria's production capacity is shut after militant attacks and pipeline leaks.

But Agip resumed operations at an oil flow station in southern Nigeria after a five-day siege by armed youths ended with no damage to the facility, the company said on Monday.

- REUTERS