Oil prices top $70 a barrel

WASHINGTON -- Oil prices settled at a record high above $70 a barrel on Monday, rising more than $1 on concerns about supply disruptions in Nigeria and diplomatic tensions between the West and Iran over Tehran's nuclear ambitions.

So long as these geopolitical issues are hovering over the market, analysts said it will be difficult for prices to fall too far -- unless there is a significant drop-off in demand, which they aren't yet seeing.

Light sweet crude for May delivery settled at $70.40 a barrel on the New York Mercantile Exchange, an increase of $1.08 from Thursday's close and 59 cents above the previous closing record set last August. The exchange was closed Friday.

Crude futures first surpassed $70 a barrel in the immediate aftermath of Hurricane Katrina. On Aug. 30, oil prices climbed as high as $70.85 a barrel during the day, and then settled at $69.81.

On an inflation-adjusted basis, oil prices would have to rise above $90 to exceed the all-time highs set a quarter century ago. In 2005 dollars, the average price of crude in 1980 was just under $77 a barrel.

ABN Amro broker Lee Fader said the trigger for Monday's rally was "heightened fear about military action" against Iran.

"If somehow this got resolved diplomatically," Fader said, "that would definitely take a few dollars off" the price of crude oil.

On the other hand, if crude futures rise above $70.85, "it can go anywhere at that point" because, from a technical trading standpoint, there is no resistance above that level, Fader said.

The market was also driven by the disruption of crude supplies in Nigeria, where more than half a million barrels a day of crude production capacity are being blocked due to militant violence. There has been production added in other parts of the country, though, and that has offset the impact. According to Platts, Nigeria produced 2.15 million barrels per day in March, down from 2.37 million barrels per day in February.

Elsewhere in Africa, Chad's oil minister, Mahmat Hassan Nasser, said in an interview Saturday that the country's oil pipeline, which exports 160,000 barrels per day, would be shut down unless the international community ensured the country received by midday today oil royalties frozen by the World Bank.

The World Bank in January froze a London escrow account containing $125 million in oil royalties, Nasser said. It also cut $124 million in financial assistance after Chad changed an oil revenue law passed in 1999 as a condition for the World Bank's support for the pipeline.

Underlying the nervousness about supplies in the Middle East and Africa is the global industry's thin margin for error. Global demand is expected to average 85 million barrels per day in 2006, leaving just 1.9 million barrels per day of excess production capacity that could be called upon in an emergency, according to Cambridge Energy Research Associates.

CERA oil analyst James Burkhard said this supply cushion shows no sign of growing anytime soon. "So far we're not at the point where demand is pulling back," he said.

However, global demand is growing at a slower rate than last year, according to the International Energy Agency.

The U.S. Energy Department forecast last week that gasoline demand would rise this summer by 1.5 percent to 9.4 million barrels per day, and that prices would average $2.62 a gallon from now through September. On Monday, the nationwide average for regular unleaded was $2.78 per gallon, according to the Oil Price Information Service.

Nymex gasoline futures jumped 6.18 cents to settle at $2.1697 a gallon -- a level not reached since late September.

On London's ICE Futures exchange, Brent crude oil futures touched a new high above $71 a barrel, rising 44 cents to $71.01 a barrel for June delivery. The contract earlier spiked to $71.40 a barrel -- the highest ever traded for a front-month contract. Brent crude's previous high was reached April 13 when it touched $70.99 in intraday trading.

In other Nymex trading, heating oil futures rose 3.98 cents to close at $2.0229 a gallon while natural gas finished at $7.28 per 1,000 cubic feet.