THE NEW YORK TIMES: Oil Up Near $70 as Funds Flow in, Iran Rumbles On

Filed at 3:52 a.m. ET

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SINGAPORE (Reuters) – Oil leapt to $70 a barrel for the first time in seven and a half months on Monday, extending strong gains made last week as tension mounted between Iran and the West over Tehran's nuclear ambitions.

U.S. May crude (CLc1) oil futures traded 53 cents up at $69.85 a barrel by 0742 GMT, having hit $70 earlier, its highest since Hurricane Katrina battered the U.S. Gulf Coast in late August last year to send U.S. prices to a record-high of

$70.85.

London's Brent crude (LCOc1) rose 43 cents to $71.00 after a new record-high of $71.40 on fears that lost Nigerian production and the threat to Iran's output would hit Europe harder than the United States.

“The drama over Iran's face-off with the West, the rise of insurgency in Nigeria and gasoline supply concerns in the U.S. ahead of the driving season are keeping a high floor under oil,'' said Victor Shum at consultancy Purvin & Gertz in Singapore.

Oil prices have risen more than 20 percent since mid-February, despite sizeable U.S. crude inventories, as geopolitical fears compound fundamental worries that refiners may struggle to make enough gasoline for the summer driving season.

Iran has expanded its uranium conversion facilities in Isfahan and reinforced its Nantanz enrichment plant, a U.S. think tank said over the weekend.

This comes just days after U.S. magazine The New Yorker reported that the United States was exploring the option of using tactical nuclear weapons to knock out Iran's underground sites. Western powers fear Iran may be planning to build an atomic bomb, which Tehran denies.

Worries over supply from Iran, which pumps about 5 percent of the world's oil, were compounded by Chad, which demanded that a U.S.-led oil consortium pay it at least $100 million by Tuesday, or it would halt its daily output of up to 170,000 barrels.

Oil Minister Mahamat Nasser Hassan told Reuters at the weekend that Chad had asked Exxon Mobil Corp. (XOM.N), Malaysia's Petronas (PETR.KL) and Chevron Corp. (CVX.N) to put the funds into a state account, circumventing the World Bank's escrow account that was meant to ensure revenues benefit the poor.

In West African producer Nigeria, there was no indication that output was resuming from Royal Dutch Shell'soffshore EA field, which has been shut since February, despite hopes for a preparatory assessment last week.

A quarter of the OPEC member's output is shut in due to militant attacks, which many analysts fear could last up to the next presidential elections in a year's time.

And the cartel does not seem to be able to deal with the rocketing prices. “I think oil prices are too high but there is nothing we can do,'' Qatari Oil Minister Abdullah al-Attiyah said on Monday.

Asked if high prices were harming the global economy, he told Reuters on the sidelines of the Qatar Economic Forum. ''When they get above $60 I start to worry.

REFINERY WOES

A series of refinery outages in Asia and the United States added to worries of summer supplies after the U.S. government said last week that inventories fell by 3.9 million barrels, much deeper than earlier expected due to heavy refinery maintenance.

A ConocoPhillips (COP.N) refinery in Borger, Texas, reported an equipment malfunction at the weekend, said regulators, while Japan's Cosmo Oil Co. (5007.T) had to shut a crude unit at its Chiba plant after a fire, on the heels of recent unplanned closures at two other Japanese plants.

“Along with the continued hardline talk from Iran, we've had some refinery issues, which is not good at this time of year,'' said a New York-based futures broker.

May gasoline (HUc1) rose 0.53 percent to $2.1191 a gallon.

Analysts said the combination of bullish factors had also drawn a fresh infusion of investor funds, helping push open interest on New York Mercantile Exchange crude oil contracts to a record high above 1 million lots last week.

“The funds are back in the market, showing a strong commitment on long positions for crude,'' said Jim Ritterbusch, president of Ritterbusch and Associates.