Oil close to 100 usd on heightened Middle East tensions UPDATE

Mon, Feb 25 2008, 10:50 GMT
http://www.afxnews.com

(Updates prices, adds details)

LONDON (Thomson Financial) - Oil rose close to 100 usd supported by heightened tensions in the Middle East and the continued flow of fund money into commodities, as market players look for alternative investments during the current financial turmoil.

Turkey's military incursion into northern Iraq in a bid to rout Kurdish separatist rebels operating in the region, and ongoing concerns about Iran's nuclear ambitions have moved geopolitical risks back to centre stage in the oil market.

At the same time, fund money has been pouring into commodities, boosting prices higher despite concerns that a weakening US economy could dent demand for oil.

"Several factors are impacting the price gains at the moment, not least the Turkish incursion into northern Iraq and the fact they look like extending that operation," said Bank of Ireland analyst Paul Harris. "Investors and speculators are also looking at the commodity suite as a whole, and there's a belief there's more upside potential in the market."

At 10.29 am, New York's WTI crude for April delivery was up 35 cents to 99.16 usd per barrel.

In London, Brent crude for April delivery was up 45 cents at 97.46 usd per barrel.

Last week, the International Atomic Energy Agency reported it was still unsatisfied with its investigation into Iran's past nuclear weapons research, despite cooperation in other areas from the Islamic state.

The US has been pressuring Iran over its alleged nuclear weapons programme, heightening fears in the oil market that supplies could be massively disrupted should military action eventually result.

MF Global analyst Robert Laughlin said: "The IAEA, in it's latest update to the UN last Friday, praised Iran for it's increased transparency regarding it's nuclear programme but then appeared to launch a 'stinging rebuke' that the Tehran government had failed to answer key questions relating to its weapon making facilities. This unexpected criticism will no doubt aggravate the Bush administration who will look to push the UN for a third and tougher round of sanctions."

Turkey's military move into Iraq has also stoked fears over supplies, with fighting in the key energy corridor heightening concerns that Kurdish guerillas could target key pipelines in the area. The Ceyhan pipeline, which exports around 300,000 barrels of Iraqi oil through Turkey, has not been affected so far, according to the Iraqi oil ministry.

While price gains have been fuelled by geopolitical risks, many market analysts continue to point to the increase in fund activity in the crude market for oil's return to the 100 usd handle.

Speculative long positions, or bets the price will rise, were up by over 15,000 contracts for WTI in the week to February 19, according to the US Commodities Futures Trading Commission.

Looking ahead, investors are keeping one eye on next Wednesday's OPEC meeting in Vienna. The cartel has repeatedly said it will not up production levels, blaming oil's rise to near record levels on market speculation and geopolitical tension rather than any shortage of supply.

OPEC may in fact consider a cut at its meeting, as demand is seasonally lower in the second quarter of the year, and the cartel is concerned a slowing US economy could see demand for crude fall.

Gasoline demand in the US has been easing in response to higher prices and a struggling economy, though heating oil demand has remained strong due to a cold front in the north-east of the country.