Oil Rises $3 on Israeli Comments About Iranian Nuclear Program
By Margot Habiby
Aug. 1 (Bloomberg) -- Crude oil rallied more than $3 a barrel after Israeli Deputy Prime Minister Shaul Mofaz said that Iran is on a path toward a ``major breakthrough'' in its nuclear weapons program which he called ``unacceptable.''
Israel has to ``make sure we are prepared for every option,'' Mofaz said, fueling speculation that the U.S. or Israel may attack Iran. Iran has threatened to blockade the Strait of Hormuz, through which a quarter of the world's oil is exported, if its nuclear facilities are targeted.
Mofaz ``definitely has juice,'' and his comments ``would make everybody nervous,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. Mofaz is seen as a candidate for Israeli prime minister after Ehud Olmert said he would leave office.
Crude oil for September delivery rose $3.20, or 2.6 percent, to $127.28 a barrel at 11:18 a.m. on the New York Mercantile Exchange. Earlier, it touched $128.60 a barrel.
Similar speculation of an attack on Iran contributed to the oil-price rally that took futures to a record $147.27 a barrel on July 11.
Iranian Supreme Leader Ayatollah Ali Khamenei, the country's highest authority, said this week that his country will push forward with its nuclear program, which Iranian officials say is designed for energy generation and other peaceful purposes.
Khamenei spoke before a deadline for Iran to reply to an offer from world powers of economic and diplomatic incentives in exchange for the suspension of its uranium-enrichment activities.
Iranian President Mahmoud Ahmadinejad said July 27 that the country has 6,000 uranium-enriching centrifuges, the Associated Press reported.
Iran is OPEC's second-largest oil producer. It pumped about 3.85 million barrels of oil a day last month, according to data compiled by Bloomberg.
Oil prices declined in earlier trading amid signs demand will extend declines after the government reported the U.S. lost jobs for a seventh straight month in July.
``Today's spike might be a bit of a knee-jerk reaction,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York. ``It's a tug-of-war between the more bullish geopolitical concerns and the more bearish economic outlook.''
Oil dropped as low as $124.06 a barrel today after the Labor Department said payrolls fell by 51,000, less than forecast, and the jobless rate rose to 5.7 percent, the highest since March 2004, from 5.5 percent the month before. Fuel consumption in the past 12 months was the lowest since 2004-2005, according to the Energy Department.
``Bad economic news is leading to demand destruction,'' said Phil Flynn senior trader at Alaron Trading Corp. in Chicago.
Futures have slipped more than $20 a barrel from the record on signs of declining demand in the U.S., which consumed about 24 percent of the world's crude in 2007. They fell 11 percent in July, the biggest one-month decline since December 2004.
The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter. Gross domestic product increased at a 1.9 percent annualized rate, the Commerce Department said in Washington yesterday, compared with the median projection of 2.3 percent in a Bloomberg News survey.
Manufacturing in China, the world's second-biggest energy consumer, contracted for the first time since a survey of purchasing managers began in 2005.
China's Purchasing Managers' Index fell to a seasonally adjusted 48.4 in July from 52 in June, the China Federation of Logistics and Purchasing said today in an e-mailed statement.
Brent crude oil for September settlement rose $2.83, or 2.3 percent, to $126.91 a barrel on London's ICE Futures Europe exchange.
Crude prices may fall next week on slowing demand. Thirteen of 29 analysts surveyed by Bloomberg News, or 45 percent, said prices will drop through August 8. Seven of the respondents, or 24 percent, said oil will rise and nine forecast little change. Last week 46 percent expected a decline.
To contact the reporter on this story: Margot Habiby in Dallas at email@example.com.