Oil briefly tested $74 a barrel yesterday as a tropical weather system brewing in the Caribbean threatened to sweep through the Gulf of Mexico next week and menace oil output yet to fully recover from last year's hurricanes.
Support also came from Iran's nuclear row with the West that could prompt United Nations sanctions against the world's fourth-largest oil exporter, although Russia ruled out such punitive action for now.
US crude was up 54 cents at $72.85 a barrel, after hitting $73.75 earlier in the day, and gaining 60 cents on Thursday. London Brent rose 41 cents to $73.09.
A spinning band of squalls in the Caribbean was on the verge of becoming Tropical Storm Ernesto and was expected to head towards the Gulf of Mexico by the middle of next week.
"Everybody came in and saw the story about the potential of this storm," said Kevin Blemkin, a broker at Man Financial. "People get a little bit excited about these things and we go from strength to strength."
Oil major BP said it could start removing nonessential workers later yesterday, but that output would not be affected by any evacuations. It was a year ago that hurricane Katrina hit the Gulf and temporarily shut down a quarter of US oil production.
"After last year, with Katrina and the like, you'd expect people to be a bit nervous," said Tony Dolphin, director of economics and strategy at Henderson Global Investors, which manages more than £67 billion (€99 billion).
A surge in demand in China, the world's second biggest fuel burner, underpinned oil's rise.
Demand in China rose 12.2 per cent in July from a year earlier, a fourth month of double-digit expansion fuelled by a hot summer and booming car industry.
US crude since the start of the year is up about 20 per cent after a prolonged supply outage from Nigeria and fears that Iran will withhold exports in retaliation to UN sanctions.
The five permanent members of the Security Council - the United States, France, Britain, China and Russia - along with Germany, have threatened sanctions against Iran if it does not suspend uranium enrichment by August 31st.
Further out, some see scope for oil to correct downwards. "On a six-month view, the price could drift lower because we'll see China and the US and following on from that Europe slowdown," said Mr Dolphin.
- (Reuters)
