Financial Times

Oil hits record over $78 in Nigeria, Mideast worry

SYDNEY, (Reuters) -

Oil surged to record highs above $78 on Friday as geopolitical storm clouds gathered, with supply disruption in OPEC-exporter Nigeria and tensions across the Middle East driving crude into unchartered waters.

U.S. crude for August surged $1.37 to $78.07 a barrel by 0710 GMT, hitting a $78.40 high as gains came after Thursday's $1.75 rally. London Brent was $1.26 up at $77.95, also breaking a record at $78.03 after Thursday's $2.30 jump.

Escalating conflict between Israel and Lebanon and fresh supply fears in the world's eighth-largest exporter, Nigeria, took centre stage, firing prices in New York 1.8 percent above Thursday's close and above $80 a barrel for fourth-quarter delivery contracts.

Iran's nuclear stand-off with the West limped back to the U.N. Security Council, North Korea stormed out of talks with South Korea, and falling crude stocks in the world's top oil consumer, the United States, continued to bolster prices.

“Oil is being hit from all fronts by geopolitical problems,” said Mark Pervan, a resources analyst at Daiwa Securities. “A raft of problems could keep prices at record levels for some time.”

Iranian President Mahmoud Ahmadinejad on Thursday warned that any Israeli strike on Syria would be considered an attack on the whole Islamic world that would provoke “a fierce response.”

Israel battered roads in Lebanon and jets struck Hizbollah's southern Beirut stronghold on Friday, a day after blockading Lebanese ports and bombing Beirut's airport in reprisals against the Lebanese guerrilla group's capture of two Israeli soldiers. Hizbollah fired barrages of rockets across northern Israel.

Neither Israel nor Lebanon are oil producers but both lie at the heart of the Middle East, which collectively pumps nearly a third of global output, leaving oil traders very nervous.

“Israel has flared up badly this week, but it's tension which has been brewing for years,” said Daiwa's Pervan. “Then there's Nigeria, where instability is endemic, politics is in turmoil and it's unlikely to change before elections next year.”

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