Crude futures jump on tough Iran talk, weakening dollar

OIL futures jumped back above US$90 a barrel yesterday as tough US government talk on Iran, the falling dollar and estimates of stronger Chinese economic growth drew buyers back into the market.

Yesterday's gains also came in part on a sense that oil prices have fallen too quickly in recent days. Crude futures opened last week over US$99 a barrel, but closed below US$88 a barrel Wednesday.

"We probably fell a little too far a little too fast," said James Cordier, president of Liberty Trading Group in Tampa, Florida. Cordier noted that many investors feel prices are still due for a run at US$100 a barrel, and viewed prices in the high US$80 range as cheap. "There's some bargain-hunting going on."

Light, sweet crude for January delivery rose US$2.74 to settle at US$90.23 a barrel on the New York Mercantile Exchange.

Crude prices gained ground early Thursday after Secretary of State Condoleezza Rice urged Europe and Russia to ratchet up pressure on Iran to halt uranium enrichment and come clean about its nuclear programs. Rice's talks with European and Russian officials showed the Bush administration remains committed to isolating Iran, despite a new US intelligence estimate that contradicted years of assertions that Iran is secretly pursuing atomic weapons. Energy traders worry that any conflict between the West and Iran will cut into oil supplies from the Middle East.

The dollar fell against the euro Thursday, reversing a three-day rally that contributed to recent crude price declines. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

Also supporting oil prices Thursday was the Organization for Economic Cooperation and Development's revision of its forecast for China's economic growth this year to 11.4 percent from an earlier estimate of 10.4 percent. Oil prices have risen steadily since 2003 in part because of growing demand from China and India.

Many analysts saw yesterday's gains as a delayed reaction to news from Wednesday, including OPEC's announcement that it would hold production steady rather than increase output and a government report that showed domestic crude inventories dropped sharply last week.

Yesterday's price jump also reinforced a view that last week's steep drop in crude prices was just a minor setback on the road to US$100 oil.

"I think it was a well overdue correction," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos., of the recent price declines. But that decline doesn't necessarily mean the bull market in oil futures is over, she said.

Other energy futures also advanced Thursday. Heating oil futures rose 5.57 US cents to settle at US$2.545 a gallon, while gasoline futures rose 8.43 US cents to settle at US$2.3013 a gallon. Natural gas futures added 14.5 US cents to settle at US$7.33 per 1,000 cubic feet. The Energy Department reported that natural gas inventories fell by 88 billion cubic feet last week, more than expected.

In London, January Brent crude futures rose US$1.69 to settle at US$90.18 a barrel on the ICE Futures exchange.

Agencies