Oil prices pass $78 a barrel

Amidst Lebanon fighting, OPEC says it is committed to "order and stability."

oil barrels 88 (photo credit:)
oil barrels 88
(photo credit: )
Intensifying violence in the Middle East on Friday stoked fears of an oil-supply disruption in the region, pushing oil prices above $78 a barrel. With oil futures climbing 5 percent in the past week, the Organization of Petroleum Exporting Countries tried to reassure the market by stressing its commitment to "order and stability." Israel widened its offensive on Lebanon on Friday, with fighter bombers blasting the airport for a second day and cutting the main highway to Syria. Hizbullah has fired more than 100 rockets into Israel. More than 51 people have died in two days of violence sparked by the kidnapping of two Israeli soldiers by Hizbullah operatives. While Israel and Lebanon are not involved in the Middle East oil market, the fear is that the conflict could expand in the region, which produces nearly a third of the world's oil and has almost two-thirds of its untapped reserves. OPEC issued a statement in which it blamed geopolitical factors beyond its control for the recent price volatility. The groups emphasized that the market is "well-supplied with crude." Indeed, oil prices did not arrive at the doorstep of $80 a barrel overnight. The combination of rising global demand, limited excess production capacity and concerns about supply interruptions from Nigeria to the Gulf of Mexico have all played a part, analysts said. So, too, has the influx of billions of dollars into oil markets in recent years by hedge funds and other financial institutions angling for profits amid global instability. "We are certainly in uncharted territory," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "I wouldn't be surprised if $80 is attained soon with this slew of geopolitical events in a tight market." Light sweet crude for August delivery on the New York Mercantile Exchange climbed as high as a record $78.40 a barrel in overnight electronic trading. By Friday morning, Nymex oil futures traded at $77.70, up $1 from Thursday's record close. Brent for August delivery at London's ICE Futures exchange, which expires at the close of trading Friday, jumped as high as $78.03, but then fell back to $77.40, up 71 cents. "We haven't even taken into account a potential hurricane in the United States, so getting to $80 and beyond this summer seems quite inevitable," Shum said. "But if these Middle East events somehow get resolved, prices could also drop sharply." Gasoline futures climbed more than 3 cents to $2.33 a gallon, heating oil futures rose 2.6 cents to $2.1060 a gallon and natural gas futures advanced 18.5 cents to $6.314 per 1,000 cubic feet. The surge in oil prices rattled financial markets, with Japan's Nikkei 225 index falling 1.7 percent Friday, and the Dow Jones industrial average drooping for the third straight day. Iran has threatened to use oil as a weapon if the United Nations invokes sanctions in its dispute with Teheran over its nuclear program. While OPEC's No. 2 supplier has not raised the issue of withholding oil from the market in a sign of solidarity with Hizbullah, the possibility - while deemed unlikely - weighs on the market's psychology, analysts said. In Nigeria, government officials said twin explosions hit oil installations belonging to an Italian oil company in the volatile southeastern delta region. Elsewhere, fighters attacked a group of 11 boats carrying supplies to Chevron's offshore oil fields Wednesday, killing four navy sailors who were escorting the convoy, Brig. Gen. Alfred Ilogho said Thursday.