Crude Oil Rises a Second Day as IEA Predicts `Tight' Supplies

By Margot Habiby and Samantha Zee

July 2 (Bloomberg) -- Oil rose for a second day after the International Energy Agency said supplies may not keep up with demand through 2013, and on speculation that Israel could take military action against Iran.

The IEA said in a report that spare OPEC capacity will shrink by 2013, keeping the market ``tight.'' Israel is increasingly likely to attack Iran this year if OPEC's second- largest producer acquires enough enriched uranium to build a weapon, potentially threatening Mideast supplies, ABC News said, citing an unidentified Pentagon official.

``The long-term supply outlook continues to face very real constraints,'' Brad Samples, commodity analyst for Summit Energy Inc. in Louisville, Kentucky, said in an interview.

Crude oil for August delivery rose as much as 83 cents to $141.80 a barrel and traded at $141.63 at 9:08 a.m. Sydney time in after-hours electronic trading on the New York Mercantile Exchange. Oil touched a record $143.67 on June 30.

``The Iranian situation looked like it was cooling down, and now the temperature has been turned up very high,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Checking gains was a statement from the U.S. State Department, which dismissed yesterday's ABC report on an Israeli attack on Iran. Iranian Foreign Minister Manouchehr Mottaki said he didn't think Israel would attack his country because of its nuclear program, CNBC reported, citing an NBC News interview.

`Fine Line'

U.S. State Department spokesman Tom Casey said he had ``no information that would substantiate'' the ABC report and criticized the official for not speaking publicly. Pentagon spokesman Bryan Whitman declined to address the report.

``Iran is trying to tread a fine line,'' Tom Hartmann, an analyst at Altavista Worldwide Trading Inc. in Mission Viejo, California, said in an interview. ``Iran is dependent on oil Imports, so if they shut down the Gulf, they shut down an economic life line.''

The Organization of Petroleum Exporting Countries' spare capacity will rise from 2.5 million barrels a day in 2008 to more than 4 million a day in 2010 before fading to ``negligible levels'' of around 1 million barrels a day by 2013, the IEA said in its Medium-Term Oil Market Report yesterday.

``This IEA report is more bad news,'' said Phil Flynn, a senior trader with Alaron Trading Corp. in Chicago. ``No matter what we do on the demand side, we don't cut back enough to get caught up on supply.''

No Discount

Saudi Arabia, the world's largest oil exporter, is not willing to sell crude oil at a discount to the normal market price for its crude grades, Oil Minister Ali al-Naimi said yesterday. Analysts including the London-based Centre for Global Energy Studies have said the kingdom may need to lower its prices to find sufficient buyers.

Saudi Arabia plans to raise crude production to 9.7 million barrels a day in July.

The IEA, the Paris-based adviser to 27 oil-consuming nations, cut more than 3 million barrels a day from its 2012 global demand forecast.

``There's demand destruction in the number one oil consumer right here in the U.S.,'' said Guy Gleichmann, president of United Investors Group in Hollywood, Florida. ``If the U.S. goes into a protracted slowdown, it's going to spread to Asia and other countries.''

Gasoline Prices

Gasoline for August delivery rose 1.64 cents to $3.5298 a gallon in after-hours trading in New York. Prices are up 53 percent in the past year.

Pump prices are following futures. Regular gasoline, averaged nationwide, rose 0.1 cent to a record $4.087 a gallon, AAA, the nation's largest motorist organization, said yesterday.

Ford Motor Co. said June sales fell 28 percent, the seventh straight monthly decline for the No. 2 U.S. automaker, as gasoline prices above $4 a gallon drove consumers away from fuel-thirsty trucks.

U.S. gasoline demand fell 2.1 percent last week, the 10th consecutive decline, a MasterCard Inc. report yesterday showed.

U.S. crude-oil inventories probably fell 700,000 barrels last week from 301.8 million barrels, according to the median estimate of seven analysts surveyed by Bloomberg News. It would be the sixth decline in seven weeks.

Gasoline supplies probably rose by 500,000 barrels from 208.8 million barrels.

Strait of Hormuz

``Any kind of neutral-to-bullish numbers means the market has enough strength to continue to $150 a barrel in crude oil,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut.

NBC News reported that Iranian Foreign Minister Manouchehr Mottaki, in an interview, backed away from the country's previous stance on whether it would block the Strait of Hormuz if there's a conflict. About 40 percent of Middle East oil is shipped through the Strait, at the mouth of the Persian Gulf.

The head of Iran's Revolutionary Guard, Major General Mohammad Ali Jafari, told the Iranian Jame Jam newspaper on June 28 that the country would ``definitely act to impose control on the Persian Gulf and Strait of Hormuz,'' according to the state- run Fars News agency.

Commodities had their best first half in 35 years. The 19 commodities in the Reuters/Jefferies CRB Index jumped 29 percent this year, the most since 1973 and more than any second-half gain in at least five decades, data compiled by Bloomberg show.

The next six months may not be as rewarding because record prices for oil, copper and a dozen other raw materials may crimp consumption and encourage growth in supply.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net
Last Updated: July 1, 2008 19:08 EDT