Oil Prices Continue Selling Above $78

Gas prices are seen in Montpelier, Vt., Monday, July 10, 2006. Vermont's average gasoline price of $2.828 per gallon of regular unleaded was the lowest in the Northeast, according to the AAA Daily Fuel Gauge Report. Vermont's price also was below the national average of $2.962, according to the AAA. It's been below the national average for two months. Connecticut, by comparison, had the highest prices in the region with an average of $3.185 per gallon of regular unleaded. (AP Photo/Toby Talbot) (Toby Talbot - AP)

SINGAPORE -- Oil prices continued trading above $78 per barrel Friday as continuing violence in the Middle East raised concerns of a possible disruption of oil supply.

"We are certainly in uncharted territory," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "I wouldn't be surprised if $80 is attained soon with this slew of geopolitical events in a tight market."

Light sweet crude for August delivery was up $1.40 to $78.10 in midmorning Asian trading on the New York Mercantile Exchange. The price closed Thursday at a new high of $76.70 a barrel, then continued climbing in after-hours electronic trading, when volumes are significantly lower, to $78.35.

The rally came as fighting between Israel and Lebanon intensified, explosions hit Nigerian oil installations and a diplomatic standoff dragged on between the West and Iran over its nuclear program.

The previous Nymex settlement record of $75.19 was set July 5. The previous intraday record of $75.78 was posted two days later.

In other Nymex trading, gasoline futures climbed 3.22 cents to $2.3335 a gallon, heating oil futures rose more than 3 cents to $2.1185 a gallon and natural gas futures advanced 93 cents to $6.222 per 1,000 cubic feet.

Oil prices are being pushed higher by rising global demand and worries that the world's limited supply cushion would not be adequate to offset a lengthy disruption to output in major producing countries, such as Iran or Nigeria. There are also concerns about the risks hurricanes pose to U.S. production.

"We haven't even taken into account a potential hurricane in the United States, so getting to $80 and beyond this summer seems quite inevitable," Shum said. "But if these Middle East events somehow get resolved, prices could also drop sharply."

While Israel and Lebanon are not involved in the Middle East oil market, the fear is that the conflict could spill into other corner of the region, which produces nearly a third the world's oil and contains almost two-thirds of its untapped reserves.

Israel intensified its attacks against Lebanon on Thursday, imposing a naval blockade, twice hitting Beirut's airport and blasting two Lebanese army air bases near Syria.

Hezbollah fired more than 100 rockets into Israel, which said one also struck the port city of Haifa. More than 51 people have died in two days of violence following the capture of two Israeli soldiers by Hezbollah militants, who are believed to have financial links to Syria and Iran.

Iran has threatened on more than one occasion to use oil as a weapon if the United Nations uses economic sanctions or some other punishment in its dispute with Tehran over its nuclear program. While OPEC's No. 2 supplier has not raised the issue of withholding oil from the market in a sign of solidarity with Hezbollah, the possibility is no doubt influencing oil traders' actions.

Shum noted, however, that high prices had not slowed demand in the top consumer markets of the United States and China.

In Nigeria, government officials said twin explosions hit oil installations belonging to an Italian oil company in the volatile southeastern delta region. Elsewhere, militants attacked a group of 11 boats carrying supplies to Chevron's offshore oil fields Wednesday, killing four navy sailors who were escorting the convoy, Brig. Gen. Alfred Ilogho said Thursday.

The surge in oil prices rattled stock market investors, sending the Dow Jones industrials sharply lower for the second straight day.