Crude Oil Rises as Iran Says U.S. Risks Disrupting Shipments

June 5
nuclear iran-- Crude oil rose to the highest in three weeks after Iran's supreme leader said the U.S. risked disrupting oil shipments from the Persian Gulf region.

The U.S. could ``seriously endanger energy flow in the region'' by acting against Iran, Ayatollah Ali Khamenei said yesterday. Iran, the fourth-biggest oil producer, borders the Strait of Hormuz. About 17 million barrels a day is transported through the waterway. Countries along the Gulf produce 27 percent of the world's oil, according to the U.S. Energy Department.

``We're up because there's increased concern about the nuclear standoff with Iran,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``Iran might curb exports, attack tankers in the Strait of Hormuz or cause other trouble if the U.S. were to take further action.''

Crude oil for July delivery rose 82 cents, or 1.1 percent, to $73.15 a barrel at 1:40 p.m. on the New York Mercantile Exchange. Futures reached $73.84, the highest since May 11. Oil touched $75.35 on April 21 and 24, the highest since trading began in 1983. Prices are up 33 percent from a year ago.

Brent crude oil for July settlement rose 94 cents, or 1.3 percent, to $71.97 a barrel on the London-based ICE Futures exchange. Futures touched $74.97 a barrel May 2 and 3, the highest since the contract began trading in 1988.

`Within Weeks'

Khamenei didn't say what steps Iran might take to counter U.S. action. Last week, the U.S., China, Russia, the U.K., France and Germany offered Iran incentives to abandon any nuclear weapons development. Iran must respond to the offer ``within weeks,'' U.S. Secretary of State Condoleezza Rice said.

Khamenei, in the address carried by the official Islamic Republic News Agency, said Iran is in a stronger position than the U.S. because President George W. Bush is the most unpopular leader in the world. Bush ``faces protests and public wrath wherever he steps on earth,'' Khamenei said, according to IRNA.

The U.S. has accused Iran of using its nuclear research as cover for the development of atomic bombs. Iran's President Mahmoud Ahmadinejad insists the program is exclusively for generation of power.

In Washington, White House spokesman Tony Snow counseled patience while Iran decides on the offer. ``Commodities markets may be unsettled by a comment like that but over time, if this succeeds, the commodities markets are going to be very happy,'' Snow said.

`Very Dependent'

``We shouldn't put too much emphasis on a threat of this kind,'' Rice said on the ``Fox News Sunday'' program. ``After all, Iran is also very dependent on oil revenue.''

Iran relies on oil for between 80 and 90 percent of the country's export earnings, according to the U.S. Energy Department. It made $31.5 billion in 2004. Sales will rise 23 percent to $55 billion this year as oil prices climb, Hadi Nejad- Hosseinian, Iran's deputy oil minister for international affairs, said May 17.

Iran produced 3.85 million barrels of crude oil a day in April, according to a Bloomberg News survey. Most Iranian oil exports go to Japan, China, South Korea and Europe. The U.S. imports no oil from Iran and has had sanctions against the country since the Islamic Revolution in 1979.

``It is a ratcheting up of the rhetoric, but it's nothing new,'' said Stephen Schork, president of Schork Report in Villanova, Pennsylvania. ``What the market seems to conveniently ignore is that the oil weapon works both ways. Yes, Iran is a major exporter of oil, but it is also a major importer of refined product.''

Iran imported an average 170,000 barrels of gasoline a day in 2005, according to the U.S. Energy Department.

`One Big Pot'

``It's one big pot,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``It doesn't matter that we don't import any oil from them. The world pumps 85 million barrels, so 4 million barrels is a nice little chunk.''

Oil prices more than doubled in 1979 after a revolution in Iran slashed the nation's oil exports. By February 1981 U.S. refiners were paying an average $39 a barrel for imported oil, according to Energy Department figures, or $86.88 in 2006 dollars.

At its narrowest, the Strait of Hormuz consists of two-mile- wide channels for inbound and outbound tanker traffic and a two- mile-wide buffer zone.

Oil has risen 20 percent this year amid disruptions of supply from Nigeria and Iraq and concern that Iranian shipments may be reduced because of the disagreement about the country's nuclear program.

Nigeria

In Nigeria, kidnappers yesterday released eight foreign oil workers they took hostage two days earlier in the Niger River delta. The incident was the fourth kidnapping of foreign oil workers this year in Nigeria, Africa's top oil producer.

Attacks by the Movement for the Emancipation of the Niger Delta on Nigerian facilities operated by Royal Dutch Shell Plc and others have shut as much as 631,000 barrels a day of crude production this year, more than a quarter of the West African nation's daily output. About 550,000 barrels a day remain shut.

Saudi Arabia's crude oil output fell to 9.1 million barrels a day in April because of weaker demand, the Wall Street Journal reported, citing the Saudi oil minister, Ali al-Naimi. The desert kingdom is the world's biggest oil exporter. Saudi output averaged almost 9.5 million barrels a day in the first quarter, according to the International Energy Agency.
source: Bloomberg
posted by ali ghannadi-irannuk