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Boycott call, row lift oil prices

By David Sheppard | January 6, 2009, Tuesday | Print Edition

OIL prices jumped to a three-week high yesterday after an Iranian military commander called for an oil boycott over conflict in the Gaza Strip, and on concerns over the Russian gas supply row.

A strong start to the new year for stock markets around the world, mounting evidence of OPEC's compliance with production cuts, and the United States Energy Department's decision to start rebuilding its crude reserves have also helped oil prices to a third day of gains.

US crude for February delivery soared to an early high of US$48.68 a barrel ?? the highest level since December 15 ?? before paring gains on profit-taking. Prices were up 10 cents at US$46.44 a barrel at 09:31am in London trading.

London Brent was down 1 cent at US$46.90.

Oil prices have risen by more than 25 percent since the conflict in the Gaza Strip began on December 27.

"The market is pausing for breath after big gains over the past week - there's some mild profit-taking after the surge," said ANZ Bank senior commodity strategist Mark Pervan.

The Gaza violence does not directly threaten any oil supplies, but traders said there was underlying concern it could affect other countries in the Middle East, the origin of a third of the world's crude, with No. 4 oil producer and OPEC member Iran typically the most vocal.

Saber rattling

An Iranian military commander has called on countries to cut oil exports to Israel in response to the conflict in Gaza, the official IRNA news agency reported on Sunday.

"Saber rattling by Iran and further instability in the Middle East produces fears for oil supplies, which is putting a platform under prices," said Bank of Ireland analyst Paul Harris.

On the demand side, the US Energy Department is looking to buy about 12 million barrels of oil for the Strategic Petroleum Reserve in the first four months of the year, to replace supplies sold following hurricanes Katrina and Rita in 2005.

The department said that it would further boost the reserve through 2009.

The announcement came after China, the world's second-largest oil consumer after the US, said earlier last week it would take advantage of lower crude prices to boost imports and build up reserves.

Adding to the concerns, Russian natural gas supplies to southeast Europe have been cut as a result of Russia's stand-off with Ukraine over gas prices, which began on New Year's day. The two sides blame each other for the dispute.

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