SINGAPORE (XFN-ASIA) - Oil prices moved back above 78 usd a barrel in late trade here as Israel's offensive in Lebanon and the Iran nuclear issue sparked fears of a wider Middle East conflict, dealers said.


They said oil now looked set to break the 80 usd a barrel mark soon, with the upcoming September contract already quoted at above 79 usd, amidst concerns ranging from the Middle East to North Korea.

At 2:10 pm (0615 GMT), New York's main contract, light sweet crude for delivery in August, was quoted at 78.10 usdper barrel, up 1.40 usd from its last settlement of 76.70 usd in New York yesterday. In after hours electronic trade in New York Thursday the contract moved to an all-time high of 78.40 usd before before some profit-taking pushed it back

Brent North Sea crude for August delivery was at 77.52 usd, off a high of 77.76 usd

"It seems like hitting 80 dollars a barrel is inevitable," said Victor Shum, a Singapore-based analyst with energy consultancy Purvin and Gertz.

"We're in unchartered territory. It is a result of a confluence of a number of geo-political events in a tight market that shows healthy demand growth...and we haven't even got our first hurricane in this US season, so pricing is going to remain strong."

Shum said oil at 100 usd a barrel "is still quite a bit off from where we are today (but) there is certainly the potential for it to hit that."

Tony Nunan, the Tokyo-based manager for energy risk management at Mitsubishi Corp, agreed 100 usd is now a possibility.

"I don't want to cause panic in the market ... but I think the market has to understand that triple-digit (oil prices) are not a fantasy anymore and are definitely possible," he said.

"We'll definitely be seeing 80 usd. It could either gradually escalate ... or it could explode."

On Friday, Israeli warplanes struck Hezbollah's power base in pre-dawn raids after a day of attacks on Lebanon that left around 50 people dead and ignited fears of a regional war that could disrupt oil supplies.

Israeli Prime Minister Ehud Olmert ordered the army to intensify the offensive against Lebanon after a barrage of rockets hit towns in northern Israel, killing three people.

In a wave of strikes early Friday, Israeli jets pounded Hezbollah's command headquarters in Beirut's Shiite-dominant southern suburbs, a power station, bridges and a Palestinian guerrilla base in eastern Lebanon.

Israel on Thursday imposed an air and sea blockade on its northern neighbour and forced the closure of the country's only international airport with a wave of attacks that damaged runways and sent fuel tanks up in flames.

Israel also called Iran and Syria an "axis of terror", holding them responsible for a rapid escalation of violence in Lebanon and the Gaza Strip.

Iran meanwhile continued its defiance of Western efforts to curb its nuclear research program, with President Mahmoud Ahmadinejad warning on Thursday that Tehran could halt UN inspections and quit the nuclear Non-Proliferation Treaty.

His threat came after world powers referred the crisis over Iran's disputed nuclear drive back to the Security Council, raising the possibility of sanctions. There are fears Iran could retaliate by cutting oil output or even by blocking the strategic Strait of Hormuz, gateway for much of the Middle East's oil output. mba/bmm/mb


Commodities
Oil, oil products
Futures





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