Oil prices rise, doubts about China pricing action

Source: Agencies  |   2008-6-21  |     ONLINE EDITION

OIL futures rebounded yesterday on unease over Middle East stability and a growing doubt that China's government will be able to curb the country's appetite for fuel by pushing prices higher.

Light, sweet crude for July delivery rose US$2.69 to settle at US$134.62 a barrel on the New York Mercantile Exchange, recovering some of the US$4.75 that the contract lost Thursday after China announced it was raising fuel prices. Crude prices ended the week largely unchanged, falling only 24 cents from last Friday's close despite reaching a new trading record of US$139.89 on Monday.

The July crude oil contract expired at the end of trading Friday. Trading was much heavier in the August crude contract, which rose US$2.76 to settle at US$135.36 a barrel.

In London, August Brent crude rose US$2.86 to settle at US$134.86 a barrel on the ICE Futures Exchange.

While Thursday's news from China helped to reduce investor concerns about surging global demand for oil and fuel, Friday's news from the Middle East injected fresh supply worries into the market.

Pentagon officials said a large scale Israeli military exercise in the eastern Mediterranean early this month could have been a demonstration of Jerusalem's ability to attack Iranian nuclear facilities.

Analysts suggested Thursday's drop in prices and Friday's gains were overreactions.

"Whenever you get Israel and Iran within the same sentence, you have a price reaction," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.

But price moves based on the possibility of conflict between the two nations are likely to be short-lived, analysts believe. An actual attack would be a different matter entirely, and could send prices sharply higher.