Oil price jumps back above $65 a barrel

Oil climbed back above $65 (€53.4) a barrel yesterday as rocket attacks in the Middle East and protests in Ecuador reminded the market how vulnerable supply lines are.

Oil tumbled earlier this week on signs record crude prices were firing inflation and dampening company earnings. But news that at least two missiles targeted, but missed, US ships docked in Jordan's port of Aqaba sent prices higher. Israel's city of Eilat was also hit.

"The knee-jerk reaction to this sort of headline is to think of the Middle East as a powder keg," said Deborah White, senior energy analyst at SG Commodities in Paris.

Niggling concerns over low gasoline stocks in the world's biggest consumer the United States and a halt in Ecuador's oil exports had already set the market on a recovery track.

Iran's decision to press on with its nuclear program in defiance of the West was at the back of traders' minds. The move has put Opec's second-biggest producer at odds with the United Nations nuclear watchdog and at risk of sanctions.

US crude was up $1.73 at $65 a barrel last night while London Brent rose $1.82 to $64.22 a barrel.Prices have averaged over $53 a barrel this year.

While world crude oil inventories remain relatively robust, supply disruptions have traders on alert, including below-par production in India and the North Sea after outages last month.

Opec, pumping at its highest rate in a quarter century, has little spare capacity to make up any shortfalls.

Ecuador worsened the lost supply by halting exports of about 144,000 barrels per day, most of which go to the United States, due to protests in Amazon provinces over the level of investment from foreign operators. The country is the second largest oil producer in South America.

"Any disruption to supply either on the refinery side or on the crude side could very quickly produce a sharp reversal back toward $65 for crude," analysts at Refco wrote.

Ecuador's economy minister Magdelana Barreiro said the nation's oil output would return to normal only in November.

Top financial energy trader Goldman Sachs said on Thursday it expected crude oil to average around $60 a barrel in about five years, $15 above its previous forecast.

Merrill Lynch hiked its long-term forecast by 40 per cent yesterday, but said it expected only $42-a-barrel crude toward the end of this decade.