Crude Above $119 on U.S. Warning Shots at Iran Fast Boats

HOUSTON, April 25, 2008(Dow Jones Newswires)

Crude oil futures shot past $119 a barrel Friday as tensions between the U.S. Navy and Iranian fast boats in the Persian Gulf jolted a market already jittery with supply fears.

Light, sweet crude for June delivery traded $3.25 higher at $119.31 a barrel on the New York Mercantile Exchange, after trading as high as $119.50 a barrel. Nymex crude had not been over $119 a barrel since Tuesday, when the front-month contract came within 10 cents of $120 a barrel.

June Brent crude on the ICE futures exchange recently traded at $116.96 a barrel, up $2.62, after hitting an all-time high of $117.56 a barrel.

Oil futures jumped as Fox News reported that U.S. security personnel had fired warning shots on two Iranian fast boats in the oil-rich Persian Gulf. The incident renewed the market's focus on Iran's proximity to the strategic Strait of Hormuz, through which one-fifth of the world's oil passes through on its way to global markets.

Oil prices had already risen on a series of outages and threatened shut-in production topping 1 million barrels a day worldwide.

"The cumulative effect ... is pretty outstanding," said Brad Samples, an analyst at Summit Energy in Louisville, Ky. "We could easily be headed for $120, if not today, then next week."

The latest outage, confirmed by Exxon Mobil Corp. (XOM) just before Fox reported the Persian Gulf incident, involved shut-in production in Nigeria following a strike by white-collar workers. Although the company didn't confirm the size of the outage, a union source told Dow Jones Newswires that 200,000 barrels a day had been disrupted by the strike. Royal Dutch Shell PLC (RDSB.LN) reported an approximately 170,000 barrel a day outage earlier in the week following an attack on an oil pipeline.

The market is also closely watching a planned strike by workers at a refinery in Grangemouth, Scotland. The facility is already shutting down in anticipation of the stoppage, which is expected to begin Sunday and last two days. Once complete, the shutdown will force BP PLC (BP) to halt operation of its Forties oil pipeline system perhaps as early as Friday evening, cutting off 700,000 barrels a day of North Sea crude from shore.

Near-term futures contracts are in one respect playing catchup to the extreme forward end of the curve, Samples said.

Outer-month futures have risen sharply in recent weeks on reports that Russia, Mexico, Saudi Arabia and other producers could have more trouble than expected maintaining or increasing today's level of output in the long term.

"Constraints in supply have been one of the key factors in crude prices being able to sustain $100 a barrel," he said.

HOUSTON, April 25, 2008(Dow Jones Newswires)