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Israel iran attack threat shoots up oil { May 2008 } Original Source Link: (May no longer be active)
http://biz.yahoo.com/ap/080620/oil_prices.htmlhttp://biz.yahoo.com/ap/080620/oil_prices.html
AP
Oil rebounds on word Israel practiced Iran attack
Friday June 20, 10:17 am ET
By John Wilen, AP Business Writer
Oil prices bounce back after Pentagon says Israeli exercises were demonstration to Iran
NEW YORK (AP) -- Oil futures rebounded Friday as Pentagon officials said a large scale Israeli military exercise in the eastern Mediterranean early this month was intended in part as a demonstration of Jerusalem's ability to attack Iranian nuclear facilities.
Prices also rose as investors reconsidered whether Thursday's sharp declines, which were based on an announced fuel price hike in China, were merited.
At the pump, gas prices rose slightly.
Light, sweet crude for July delivery rose $3.59 to $135.52 a barrel on the New York Mercantile Exchange, recovering much of the $4.75 that the contract lost Thursday after China announced it was raising fuel prices.
While Thursday's news from China reduced investor concerns about surging global demand for oil and fuel, Friday's news from Iran injected fresh supply worries into the market. Still, analysts suggested both price moves were overreactions.
"Whenever you get Israel and Iran within the same sentence, you have a price reaction," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.
But price moves based on the possibility of conflict between the two nations are likely to be short-lived, analysts believe. An actual attack would be a different matter entirely, and could send prices sharply higher.
Meanwhile, several analysts say China's fuel price hike could actually increase the nation's crude demand. Many Chinese refiners have resisted producing fuel in recent months, as the retail prices they're allowed to charge were not high enough to cover the costs of their main raw ingredient, crude oil. Now that they can charge more for fuel, Chinese refiners may actually produce more diesel and gasoline, using more crude oil in the process.
"The increase in prices can be seen ... as an attempt to reduce shortages through encouraging domestic supply," said Barclays Capital analyst Kevin Norrish in a research note. "Indeed, it could well be that case that effective demand actually rises, dependent on the current level of shortages."
Some analysts also questioned whether the modest price hikes will actually curb Chinese demand for fuel.
"It remains uncertain whether this fuel price hike in China will really significantly impact demand growth in China in a negative way," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "This (was) a knee-jerk overreaction by the market."
Also supporting prices Friday were reports that Nigerian oil workers have decided to strike at a Chevron Corp. facility beginning Monday, a move that could further cut oil supplies from Africa's largest producer.
The dollar fell against the euro Friday, putting more upward pressure on oil prices. Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens. A falling dollar makes oil less expensive to investors overseas.
The July crude oil contract expires at the end of trading Friday; trading in expiring contracts is often volatile.
At the pump, meanwhile, gas prices inched 0.2 cent higher to a national average of $4.075 a gallon Friday, according to AAA and the Oil Price Information Service. Gas prices have drifted lower this week since hitting a record $4.08 a gallon on Monday.
Gas prices will likely hold steady near current levels, as long as oil continues trading in its current range between roughly $132 and $138, analysts say. Diesel fuel, used to transport the vast majority of the world's food, consumer and industrial goods, fell 0.5 cent overnight to a national average of $4.786 a gallon. Diesel reached a record $4.797 on Monday.
In other Nymex trading Friday, July gasoline futures rose 7.56 cents to $3.4282 a gallon, while July heating oil futures rose 10.59 cents to $3.8194 a gallon. July natural gas futures rose 25.9 cents to $13.12 per 1,000 cubic feet.
In London, August Brent crude rose $3.59 to $135.59 a barrel on the ICE Futures Exchange.
Associated Press Writers Pauline Jelinek, in Washington, and George Jahn, in Vienna, Austria, contributed to this report.
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