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Reuters: Oil climbs over $73 on worries over Iran flows

Mon Jun 5, 2006 12:23 AM ET
By Neil Chatterjee

SINGAPORE (Reuters) – Oil prices climbed over $73 on Monday after Iran hinted it might use oil production as a weapon in its nuclear dispute with the West and hitches at U.S. refineries spurred worries over fuel supplies.

U.S. light crude for July delivery traded 82 cents or 1.1 percent higher at $73.15 a barrel by 0408 GMT, after a high of $73.55 and gains of $1.99 on Friday. London Brent crude rose 92 cents to $71.95 a barrel.

Iran’s Supreme Leader Ayatollah Ali Khamenei said if the United States makes a “wrong move” over Iran, energy flows from the world’s fourth-largest exporter will be endangered.

“The gains are a combination of everything but most importantly it’s Iran,” said broker John Brady from ABN AMRO in New York. “We’ve had mixed messages before but it certainly stokes fears.”

Tension between Iran and the West over Tehran’s nuclear program have helped drive oil’s 20 percent rally this year.

Iranian officials have previously ruled out using oil as a weapon in their nation’s nuclear standoff with the West, but Khamenei’s comments suggested Iran could disrupt supplies if pushed.

U.S. Secretary of State Condoleezza Rice reacted to his comments on Sunday by counseling a wait-and-see approach.

Washington has offered to join European countries in talks with Iran about the nuclear program, but says Iran must first suspend uranium enrichment. Iran has so far rejected the demand, saying enrichment is a national right.

President Mahmoud Ahmadinejad said on Saturday Iran will consider proposals on incentives to stop nuclear work from the United States, Russia, China, France, Germany and Britain but also insisted that the crux of the package was unacceptable.

Oil prices were also boosted by production problems at U.S. refineries during the start of peak summer fuel demand.

“We’re in the driving season and the hurricane season, so we’re in the mode where the market seasonally trades higher,” said Brady.

Oil product futures led gains on Monday, with gasoline up 1.2 percent at $2.2246 a gallon while heating oil rallied 1.2 percent to $2.0376 a gallon.

Three south Texas plants were restoring production on Sunday and receiving tankers into Corpus Christi harbor as it reopened following an oil spill, after urgent repairs and severe thunderstorms hurt production at five U.S. plants.

The disruptions come at the start of what is expected to be another busy storm season in the U.S. Gulf, where last year’s hurricanes devastated oil facilities and drove prices to record highs.

OPEC producers agreed last week to leave output limits unchanged and keep pumping at near full rates in a bid to ease prices, which they worry will spur inflation that could slow economic growth and sap oil demand.

An OPEC member Nigeria, kidnappers freed eight foreign oil workers on Sunday, two days after they were seized in an unprecedented raid on an exploration rig far offshore.

Attacks onshore or in shallow water are frequent in the Niger Delta, but this showed that even deep offshore facilities are no longer safe. A series of militant attacks have already cut a quarter of output from the world’s eight biggest crude exporter.

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