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Oil climbs as Saudi pledge fails to halt rally

Oil rose nearly 1% on Monday, as escalating tensions between Israel and IranSaudi Arabia’s promise to pump more oil, if needed, would turn back the rally. stoked supply concerns and traders doubted

A vow by Nigerian militants to halt attacks on oil facilities in the delta barely tempered the rise after two fresh attacks over the past week knocked out another tranche of output. US light crude for August delivery extended early gains to rise $1.14 or 0.84% to $136.50 a barrel by 0508 GMT, reversing an early decline of more than $1.

London Brent crude rose $1.29 or 0.96% to $136.15. “The market took the opportunity to take profits earlier on Saudi Arabia’s promise... but realistically that alone is not enough to calm the market,” said Mark Pervan, senior commodities analyst at Australia and New Zealand (ANZ) Bank in Melbourne.

Oil prices hit a record near $140 a barrel last week and have doubled from a year ago, stoking inflation and triggering protests worldwide, and top energy policy makers meeting in Jeddah at the weekend offered little hope for a quick fix. Top exporter Saudi Arabia confirmed it will lift production for a second time to 9.7 million barrels per day (bpd) in July, its highest in over 30 years, and pledged on Sunday to open the taps wider still if the market demanded it.

It also sketched out plans to boost capacity to 15 million bpd when the future demand warrants the investment, hoping to soothe growing fears that the world is running out of oil, but those measures failed to take the edge off an anxious market. “The short-term supply situation is still very tight and tensions between Iran and Israel are back in focus,” Pervan said. Iran will give a “devastating” response to any attack on the country, its defence minister was quoted as saying on Sunday, the latest volley in the ongoing war of words centred around Tehran’s nuclear program.

On Friday, the New York Times quoted US officials as saying Israel had carried out a large military exercise, apparently a rehearsal for a potential bombing of Iran’s nuclear facilities. Energy experts are concerned any conflict in Iran could lead to a shutdown of the Strait of Hormuz, a waterway separating Iran from the Arabian Peninsula through which roughly 40% of the world’s traded oil is shipped.

Despite world powers’ offer of economic incentives to coax Tehran into halting such activities, Iran is pressing on with uranium enrichment “non-stop”, its envoy to the UN nuclear agency was quoted as saying on Saturday.

 
JEDDAH OVERSHADOWED

Sunday’s emergency meeting in Jeddah infused new urgency to the ongoing dialogue of major producers and consumers, participants said, but they acknowledged a lack of hard measures for taming oil’s rally could leave the market underwhelmed. “The meeting was a bit disappointing,” said a European diplomat. “The only producer that came up with any concrete proposals was Saudi Arabia -- all the other producers just made bland statements about future capacity plans.”

In the end Jeddah was overshadowed by news from Nigeria, where militants in the southern Niger Delta announced a unilateral ceasefire on Sunday, the end of a week that saw two new attacks knock an additional 340,000 bpd offline. Community elders had appealed for the Movement for the Emancipation of the Niger Delta (MEND) to halt their campaign of sabotage, which has cut oil output by about 40% in the world’s eighth-largest exporter. “We are respecting an appeal by the Niger Delta elders to give peace and dialogue another chance,” MEND said, announcing the unilateral ceasefire from June 24.

Attention later in the day could shift to new indicators on the economic health of the United States, which consumes nearly a quarter of the world’s oil. Consumer confidence for June and the Richmond Fed’s manufacturing report are both due at 1400 GMT (3:00 p.m. BST).

The dollar held steady from late US trade on Friday at 107.35 yen, below a four-month high hit last week. The weak dollar was seen as one factor for the surge in oil prices and global inflation pressures while adding to the US economy’s housing-led woes. (Reuters)