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Oil hits record $72 on Iran fears

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    The Architect

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By Janet McBride

LONDON (Reuters) - Oil hit a record $72.20 a barrel on Tuesday as Iran defied world pressure to halt its nuclear program, raising new fears of a cut in supplies from the world's fourth biggest crude exporter.

In London, North Sea Brent crude oil jumped 74 cents to set the new all-time high as Iran and the West exchanged increasingly sharp words over the Islamic Republic's determination to push ahead with uranium enrichment.

U.S. West Texas Intermediate crude climbed to $70.88, smashing through its previous record of $70.85. At 1232 GMT Brent was up 42 cents at $71.88. WTI was up 35 cents at $70.74.

"The Iranian situation is making us all very nervous... We don't seem to be getting anywhere on the diplomatic solutions," said Deborah White, an analyst at SGCIB in Paris.

Iran is not the market's only concern.

With almost a quarter of Nigerian oil production still shut after rebel attacks two months ago, oil consumers feel almost as vulnerable as they did during the Arab oil embargo in the 1970s.

Oil prices have soared from $20 at the start of 2002 and are now nearing the inflation-adjusted peaks of over $80 hit in 1980, the year after the Iranian revolution.

Initially fired by strong demand from the United States and the fast-growing economies of China and India, the rise has accelerated over the past year on worries over supplies.

Iraq's once significant oil industry is in crisis, Nigerian exports have been slashed by rebel attacks on the world's eighth biggest exporter and consumers are worried that Iran's exports could fall victim to its nuclear dispute with the West.

The rally has also been aided by big investment funds putting their money into commodities in the hope of higher returns than they get from equities or bonds.


President Mahmoud Ahmadinejad declared Iran a nuclear power last week, saying it had enriched uranium to the level used in power stations. On Tuesday, he delivered a warning to any nation considering attacking the Islamic republic.

"Today, Iran's army is one of the most powerful armies in the world and it will powerfully defend the country's political borders and the nation," Ahmadinejad said in a speech during an armed forces parade.

"It will cut off the hands of any aggressors and will make any aggressor regret it," he added.

The United States has said it wants a diplomatic solution to the standoff but has not ruled out a military option.

It meets with world powers on Tuesday to consider targeted sanctions against Iran and has said it wants the U.N. Security Council to be ready to take strong diplomatic action.


The disruption to Nigeria's crude output will become more critical as the U.S. driving season begins next month.

Nigeria is a major supplier of gasoline-rich crude oil to the United States. Analysts reckon gasoline stocks in the world's top oil user fell again last week.

"Under the wrong circumstances, you could easily see $80 being broken or even higher than that," said Kevin Norrish, an analyst at Barclays Capital. "Any major loss of production is going to give us another major push up."

Ministers from the Organization of the Petroleum Exporting Countries, who will gather informally this weekend during an International Energy Forum meeting in Doha, have said there is nothing more the group can do to bring down prices.

For over a year OPEC has been pumping close to its limit.

"It is obvious that OPEC does not have a magic wand... OPEC is doing all it can regarding oil production," Qatari Oil Minister Abdullah al-Attiyah told Qatar's state news agency QNA.

(Additional reporting by Alex Lawler in London)

Source: Reuters
The sky was the color of a television, tuned to a dead channel. - William Gibson

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