Associated Press
08.19.2004

Crude futures climbed above $48 a barrel Thursday as market fears of sabotage against the Iraqi oil infrastructure outweighed assurances from Baghdad that exports would increase in coming days.

U.S. light crude rose 79 cents to $48.06 in midday trading on the New York Mercantile Exchange.

On Wednesday, prices closed at $47.27, the highest Nymex settlement on record. When adjusted for inflation, oil is about $10 less per barrel than it was leading up to the first Gulf War.

Iraqi oil minister Thamer al-Ghadhban said Thursday the country was prepared to resume pumping its capacity of 1.7 million barrels per day, up from current levels of about 1 million a day. "We will resume full south oil exports shortly," Ghadhban said at a news conference in Baghdad.

However, the impact of the announcement was muted as the likelihood of an end to the fighting in southern Iraq diminished.

Muqtada al-Sadar, a radical Shiite cleric whose forces have threatened to attack oil pipelines, rejected a government ultimatum to immediately disarm his militia and pull them out of a Muslim shrine in Najaf without conditions.

And as expectations of a quick cease-fire waned, fears of oil-pipeline sabotage rose.

"The market has taken the disruption in Iraqi oil supplies very seriously," said James Steel, director of commodities and oil research at Refco, a New York-based brokerage.

Iraqi output and exports have been hampered recently by fighting in the southern part of the country, putting upward pressure on global oil prices at a time of strong demand in China and the United States and supply concerns in Russia, Venezuela and other petroleum-producing nations.

"The market has been able to accommodate a supply disruption from one source," Steel said. "But what makes oil prices jittery is when you have the possibility of disruptions from several sources at once."

The price of crude is more than 50 percent higher than a year ago and has spiked by almost 30 percent since the end of June.

On London's International Petroleum Exchange, Brent crude futures for October delivery traded at $43.62.

"Fifty dollars isn't so unreasonable anymore," said Victor Shum, oil analyst at Texas-based energy consultants Pervin & Gertz in Singapore.

Analysts and traders also remained concerned about developments and a possible cut in supply from Russia and Venezuela, both major crude exporters.

Russian oil giant Yukos continues to teeter on the brink of bankruptcy as the government tries to collect $3.4 billion in back taxes - a move that threatens to weaken Yukos' daily productivity of 1.7 million barrels.

In Venezuela, the world's fifth-largest exporter, opposition leaders refused to participate in an audit of last Sunday's referendum to oust President Hugo Chavez - which officials say he won convincingly.

Underpinning the market's nervousness about the geopolitical instability is the belief that the Organization of Petroleum Exporting Countries, Saudi Arabia in particular, does not have much ability left to swiftly raise production in the event of a significant supply interruption.