Oil on fire as Lebanon bleeds

LONDON: US crude oil surged to $76 a barrel on Monday as BP began shutting an Alaskan field that pumps 8% of US crude and anxiety over the West Asia, supplier of almost a third of the world’s oil, ran high.

US crude rose about 2.8% to $76.9, approaching its $78.4 record. By afternoon, it was up $1.9 at $76.7. London Brent was up $1.8 at $77.9 on expectations the US would scour world markets for replacement oil.

Oil has rallied 25% this year with a quarter of Nigeria’s output shut by militants, saboteurs playing havoc with Iraq’s exports and consumers afraid Iran could halt oil flows to punish opponents of its nuclear programme.

War in Lebanon has added to unease. Citigroup said the loss of the BP field further cut the volume of spare oil available to the 85m bpd world market.

Meanwhile, the US energy department said it would consider loaning oil to refiners from its emergency reserves as it did last year when hurricanes shut a quarter of US crude and fuel output. Opec said it was concerned at the closure and declared it would work to ensure there was no supply shortage.

“The Organisation will study the situation and react as appropriate,” Opec said in a statement on Monday. The International Energy Agency ruled out using its reserves, executive director Claude Mandil said. The US is the world’s biggest oil consumer by far, accounting for a quarter of global demand.

“In this environment we maintain our forecast for Brent crude of $77 a barrel this quarter, and so implicitly expect prices to move above $80 a barrel at some point this quarter.” Tensions in the West Asia rose after Iran again invoked its oil exports for political leverage and Lebanon rejected a draft UN resolution meant to end the war between Israel and Hizbollah, delaying its vote.

A further spike in oil prices resulting from a broader West Asia conflict would drag an already slowing US economy into recession more easily now than a year ago, Standard & Poor’s said on Monday.

The credit ratings agency forecast three scenarios — with a $250 oil barrel sparking global recession in the worst of them, should Iran close the Strait of Hormuz, a bottleneck in the Gulf region between Iran and Oman by which tankers from Kuwait, Saudi Arabia and the United Arab Emirates transit.

But the most likely scenario, based on a limited conflict, has prices falling from current $75 levels to below $70 by year-end and to $60 by end-’08, which would allow the world economy to keep expanding, with US growth slowing to 2.5% in ’07, S&P said.

Iran, the fourth-largest oil exporter, vowed on Sunday to expand its atomic fuel work and warned of a harsh response if the UN imposed sanctions aimed at halting enrichment.