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Oil Climbs to Record in London on Concern About Iran Conflict
April 10 (Bloomberg) -- Crude oil rose to a record in London and a two-month high in New York after reports that the U.S. is planning for military strikes against Iran, the world's fourth- biggest producer.

The U.S. may be using the threat of attacks to put pressure on Iran to comply with United Nations' demands that it end nuclear enrichment, the Washington Post said yesterday. The Strait of Hormuz, which lies between Iran and Oman, is the only waterway in and out of the Persian Gulf, and about a fifth of the world's oil passes through it.

``The geopolitical rally is back in full swing,'' said John Kilduff, vice president of risk management at Fimat USA in New York. ``These headlines have upped the ante,'' he said. ``The Iranians could shut the Strait of Hormuz if attacked and are considerable oil producers.''

Crude oil for May delivery jumped $1.41, or 2.1 percent, to $68.80 a barrel at 1:30 p.m. on the New York Mercantile Exchange. Futures were just $2.05 shy of the record $70.85 reached on Aug. 30, the day after Hurricane Katrina.

Brent crude oil broke the record set after the hurricane, which shut oil production in the U.S. Gulf of Mexico. Brent for May settlement rose $1.51, or 2.2 percent, to $68.80 a barrel on London's ICE Futures exchange and touched an all-time-high $68.93. The previous record for Brent futures, which began trading in 1988, was $68.89 a barrel on Aug. 30.

The U.S. is weighing air strikes and the use of tactical nuclear arms to destroy Iran's nuclear facilities and bring down President Mahmoud Ahmadinejad's government, according to an article in this week's New Yorker magazine that cites unidentified military and intelligence officials.

`Wild Speculation'

``What you're reading is just wild speculation,'' President George W. Bush said in a speech on terrorism at Johns Hopkins University in Washington today. ``The doctrine of prevention is to work together to prevent the Iranians from having a nuclear weapon.''

Iran today accused the U.S. of conducting ``psychological warfare stemming from America's anger and helplessness,'' Iranian Foreign Ministry Spokesman Hamid Reza Asefi told reporters in Tehran today, Agence France Presse reported.

``What we're hearing sounds similar to the run-up to the invasion of Iraq,'' Kilduff said.

Brent Oil

Crude oil was also pulled higher by concern that gasoline supplies will be insufficient to meet peak demand in the summer. U.S. gasoline inventories probably fell 2 million barrels last week, according to a Bloomberg News survey of eight analysts. U.S. gasoline inventories dropped 6.2 percent over the five previous weeks.

The U.S. Energy Department's weekly report on gasoline inventories will be published at 10:30 a.m. April 12.

``Product inventories have been supporting prices,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``I think 99 percent of this is due to continuing maintenance, and it doesn't look like the refiners will be back up and running in the next week or two.''

Refinery Operations

Refineries probably operated at 86.2 percent of capacity, up 0.3 percentage point from the week before, according to the responses. Refiners may be performing maintenance that was delayed in the aftermath of the hurricanes last year.

The introduction of new gasoline blends may make it harder for refiners to meet demand this year. Gasoline using MTBE, or methyl tertiary butyl ether, is being phased out. Refiners don't want to be liable for groundwater contamination caused by the additive and are switching to ethanol-blended fuel.

``The panic surrounding gasoline is pushing crude higher,'' said Bill O'Grady, an analyst with AG Edwards & Sons in St. Louis. ``The specification issues are starting to permeate the market. The distribution of ethanol is going to be a big problem.''

Ethanol can't be blended with gasoline at the refinery and pumped through pipelines to terminals in the same way MTBE has been. Ethanol must be shipped to regional terminals by rail or truck, which may lead to supply bottlenecks and price volatility, analysts said.

Gasoline Surges

Gasoline for May delivery rose 4.12 cents, or 2.1 percent, to $2.018 a gallon in New York, the highest level since October, when prices were coming down from the peak caused by the hurricanes.

The price of regular gasoline at the pump, averaged nationwide, has jumped 14 percent in the last month, according to AAA, the nation's largest motorist organization. The price is up 18 percent from a year ago. Prices rose 1.7 cents to $2.676 yesterday.

Oil has outperformed stocks and bonds over the past two years, prompting more money managers and individuals to put money into commodity-linked investments.

The American Stock Exchange today began trading a fund that tracks the prices of West Texas Intermediate crude oil, the U.S. benchmark. The ETF, the first to track crude oil exclusively, provides an easier vehicle for retail investors to put their money into the commodity.

Nauman Barakat, senior vice president of global energy futures at Macquarie Inc. in New York said the ETF may be a sign of a top in the market. ``Typically when the dentists and doctors enter the market, you've probably seen the high or low of the move, perhaps the end of the bull cycle,'' Barakat said. ``Where have they been for the last three years?''