Geopolitical Crisis Pushes Crude Oil Futures to Record High

Alan Fein

New York - Crude oil rose to a record setting level in New York Thursday as violence in the Middle East grew and Israel extended its attacks into Lebanon while Iran's stalling nuclear talks draws UN Security Council action. The geopolitical crisis in the Mideast has now reached critical levels, commodity traders believe.

Commodity traders showed their concern over Middle East violence Thursday, an area that supplies over 30 percent of the world's crude oil. In New York, crude oil for August delivery rose to $77.30 per barrel, up $1.24 after Hezbollah militants in Lebanon kidnapped two Israeli soldiers. Israel responded by blowing up bridges and sending military forces into Lebanon Wednesday. The escalated Middle East fighting worried energy traders over supply concerns.

Crude oil futures were at their highest since trading began in 1983. Wednesday, the EIA reported that US stocks of crude oil and gasoline were down following the Independence day holiday weekend when travel in the US peaks. The Energy Department said commercially available crude oil stocks shrank by 6 million barrels to 335.3 million barrels last week, though crude supplies are still 2 percent higher than last year.

Brent crude oil on London's ICE exchange rose 83 cents per barrel to close at $74.38 yesterday as energy traders there were also worried over global supplies. Unleaded gasoline in New York rose 3 cents per gallon to $2.29. Gas prices at the pump this week have hit record highs on some states with EIA reporting that the national average price for a gallon of regular gasoline was $2.97 on Monday. Tuesday, the Lundberg report of 7,000 gasoline stations across the nation surveyed showed the national average price for a gallon of regular gasoline had reached $3.00 per gallon. This morning, AAA reported that the average price was $2.96 compared to $2.32 a year ago.

The Middle East violence drew condemnation from the United Nations' Secretary-General, Kofi Annan, who said yesterday that the UN was "distressed" over Hezbollah's actions while condemning Israel's Lebanese attacks. Stocks reacted to the heightened violence in the Middle East and spike in crude oil prices in New York and London with the Dow falling over 96 points in late morning trading in New York. The broader S&P 500 index fell over 8.5 points while the Nasdaq National Market index declined 18.3 points.