A customer pumps gas at a Shell gas station in Cambridge, Massachusetts, April 29, 2008. REUTERS/Brian Snyder

Reuters: Oil steady above $126

Sun May 11, 2008 8:42pm EDT

By Fayen Wong

PERTH (Reuters) – Oil hovered close to record levels above $126 a barrel on Monday as violence in the Middle East heightened worries of supply disruptions in the world’s largest crude producing region.

U.S. light crude for June delivery rose 18 cents to $126.14 a barrel by 2359 GMT. It closed $2.27 higher at $125.96 a barrel on Friday, before rising to a record $126.27 in late post-settlement trade.

Oil has jumped nearly 14 percent since slipping as low as $110.53 a barrel on May 1, as investors seized on supply disruptions in the North Sea and Nigeria, as well as galloping demand for distillate fuels, a category that includes diesel fuel and heating oil.

“Lingering concerns over the vulnerability of oil supplies from several regions, particularly in light of recent disruptions to production from Nigeria, are supportive factors for the oil price,” David More, an analyst from the Commonwealth Bank of Australia, said in a morning note to clients.

“Diesel prices also remain at high levels, exerting an upward tug to crude oil prices.”

Turkey said on Sunday it had launched air and artillery attacks against Kurdish separatist rebels in northern Iraq overnight after an insurgent strike on a military base.

Over the past week dozens of Turkish F-16 warplanes have launched bombing raids against suspected PKK positions deep inside northern Iraq.

In Lebanon, Hezbollah militants continued to battle the country’s pro-government gunmen in Beirut on Sunday, extending the fighting to a fifth day in Lebanon’s worst civil strife since the 1975-1990 civil war.

Although Lebanon is not an oil producer, civil unrest there has pushed up oil prices in the past, most recently in the summer of 2006 when Israel invaded Lebanon in an unsuccessful attempt to subdue Hezbollah.

Oil’s surge on Friday came amid large gains in heating oil and gasoline. Tight supplies on both sides of the Atlantic supported gains in heating oil, while expectations of higher gasoline demand in the summer driving season drove gasoline prices to a record high on Friday.

An OPEC source said on Friday the group might consider boosting output before its next scheduled meeting in September should crude oil prices keep rising but Ecuador’s and Qatar’s oil ministers said there were no plans for an early meeting as soaring prices were out of OPEC’s control.

“We don’t need to meet before September because we have nothing to do before September,” Qatar’s oil minister Abdullah al-Attiyah told Reuters by telephone on Sunday. “The oil price is out of our control.”

(Reporting by Fayen Wong, Editing by Jacqueline Wong)