Oil up on supply concerns

Last updated 08:20 10/06/2011

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Brent crude rose to a five-week high on Thursday as Opec's failure to reach a deal on raising output continued to raise fears of leaner supplies later in the year.

In London, ICE Brent for July delivery rose US$1.35 to US$119.20 a barrel by 1:30pm EDT (5:30am NZT), after hitting a fresh session high of US$119.72, the highest since May 5.

US crude was up US$1.10 at US$101.84, having earlier hit US$102.44.

Crude's gains were part of a broad commodities rally that saw the global benchmark Reuters-Jefferies CRB index rise to its highest level since May 5.

A ministerial meeting of Opec on Wednesday broke down in acrimony, but Saudi Arabia pledged that it will increase output despite the surprise disagreement over pumping more oil,

"The rare breakdown in Opec unity in public display yesterday continues to underpin the market right now," said Stephen Schork, editor of the Schork Report, in Villanova, Pennsylvania.

In earlier trade, crude's gains were limited as the euro fell against the dollar after European Central Bank President Jean-Claude Trichet signaled a widely expected rate hike next month, leaving little room for a further upside move in the single currency.

MIDEAST CONCERNS

Oil investors remained focused on Middle East and north Africa, in the face of continued violence in Syria and the tense situation in Yemen, where protests have mounted over reports that wounded President Ali Abdullah Saleh would return soon after medical treatment in Saudi Arabia.

At the same time, traders weighed news that Libya's rebels hoped to restart oil production soon and had gained aid pledges of over US$500 million, after months of civil unrest that had cut more than 1 million barrels per day of output.

Western and Arab nations were meeting in Abu Dhabi on Thursday to focus on what one US official called the "end-game" for Libyan leader Muammar Gaddafi as Nato again stepped up the intensity of air raids on Tripoli.

Olivier Jakob, an analyst at Petromatrix in Zug, predicted the West will have removed Gaddafi by the end of the year, leading to an increase in spare capacity for 2012.

US TRADE DATA SUPPORTIVE

Record US exports in April narrowed the US trade deficit, tempering fears that the economic recovery was sputtering and eased some worries about oil demand.

The trade data overshadowed a weekly report showing first-time claims for jobless benefits edged higher last week.

The United States, the world's top oil consumer, had put pressure on Saudi Arabia to deliver a credible deal to cap crude prices and underpin slowing economic growth.

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President Barack Obama is keeping open the option of using the US strategic oil reserves to cover any supply gap, but no decision has been made, a White House spokesman said.

Oil prices have rallied since the start of the year on the loss of Libyan oil production because of a civil war, and were approaching 2008 peaks before falling by more than 10 percent in early May.

Since that time, competing pressures about supply and ailing global growth have kept prices in a tight range.

- Reuters

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