Oil Rises to Record on Concern Iran Supplies May Be Disrupted

By Grant Smith and Alexander Kwiatkowski

June 30 (Bloomberg) -- Crude oil rose to a record above $143 a barrel on speculation the dispute over Iran's nuclear program may disrupt supply from OPEC's second-largest producer.

Pressure on Iran to end its uranium enrichment program and the falling value of the U.S. dollar may drive prices to $170 a barrel, OPEC President Chakib Khelil said on June 28. Oil is headed for its biggest six-month gain since 1999 as investors shun equities for commodities, looking for a hedge against a weaker dollar and quickening inflation.

``It is a risk Iran will take any measures to cut flows through that important region and the market is reacting to that,'' said Andy Sommer an analyst with HSH Nordbank in Hamburg. ``There are some funds flowing from the equities side to commodities.''

Crude oil for August delivery rose as much as $3.46, or 2.5 percent, to $143.67 a barrel in electronic trading on the New York Mercantile Exchange. It was at $142.67 a barrel at 12:20 p.m. in London.

Brent crude oil for August settlement rose as much as $3.60, or 2.6 percent, to $143.91 a barrel on London's ICE Futures Europe exchange, the highest since trading began in 1988. It was at $143.06 a barrel at 12:20 a.m. London time.

Foreign ministers from the Group of Eight nations last week suggested more talks to coax Iran into opening its nuclear program to inspectors, after speculation the Islamic Republic faces an imminent Israeli strike.

Israel Strike

John Bolton, the former U.S. envoy to the United Nations, has said Israel would strike Iran between the U.S. presidential election in November and inauguration in January.

Nigeria's rank among producers in the Organization of Petroleum Exporting Countries has slipped from sixth to seventh behind Angola amid a renewal in militant violence. Chevron Corp., Royal Dutch Shell Plc. and Eni SpA have all shuttered fields there this month.

``Tensions ratchet up in Iran and troubles continue in Nigeria, drawing funds into the market,'' Robert Montefusco, a broker at Sucden (U.K.) Ltd. in London, said before the latest record was reached. ``The weak dollar is also helping. The market does not want to break down just yet.''

The European Central Bank is expected to raise interest rates a quarter-percentage point to 4.25 percent, according to a survey of economists by Bloomberg News. The dollar has declined 7.3 percent this year against the euro.

Buy Commodities

Avoid the dollar ``at all costs,'' investor Jim Rogers said in Shanghai today. ``The best investments in 2008 are commodities and natural resources. Agricultural prices have much higher to go over the next decade. We have a shortage of everything including seeds.''

Hedge fund managers and other large speculators almost doubled their bets on rising prices in the week ended June 24, according to U.S. Commodity Futures Trading commission data.

Net-long positions in New York oil contracts, the difference between contracts to buy and sell the commodity, gained 90.5 percent to 24,217 contracts. Long positions rose from a five-month low a week earlier while contracts to sell oil fell a second week to a two-month low.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.netAlexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net;

Last Updated: June 30, 2008 07:22 EDT