Oil Rises Above $49 a Barrel as Iraq Fighting Threatens Exports

Aug. 20 (Bloomberg) -- Crude oil futures rose to a record, surpassing $49 a barrel in New York, on concern that fighting between U.S. forces and followers of Shiite Muslim cleric Moqtada al-Sadr will cut shipments.

Iraqi oil exports ended a second week at about 1 million barrels a day, down from 1.8 million in April. Oil in New York has set records every day but one since July 30 on concern members of the Organization of Petroleum Exporting Countries don't have the spare capacity to compensate for any disruptions to supply.

``With robust demand, OPEC producing near capacity and threats to oil supply, the market shows no sign of turning around,'' said Tom Bentz, an oil broker at BNP Paribas Commodity Futures Inc. in New York. ``Violence in Iraq is keeping us on edge.''

Crude oil for September delivery was up 30 cents, or 0.6 percent, at $49 a barrel at 10:21 a.m. on the New York Mercantile Exchange. Prices reached $49.40 a barrel, the highest since oil began trading in New York in 1983. Futures were 58 percent higher than a year earlier.

The September contract expires today. The more-active October futures contract was up 44 cents, or 0.9 percent, at $48.08 a barrel.

In London, the October Brent crude-oil futures contract was up 52 cents, or 1.2 percent, at $44.85 a barrel on the International Petroleum Exchange. Brent reached $45.15 a barrel, the highest price since futures began trading in 1988.

Exports won't recover until security improves, Dhia Al- Bakka, the head of Iraq's State Oil and Marketing Organization said Wednesday in an interview in Vienna.

Attacks and Threats

Several oil installations in southern Iraq have been attacked and threats were made to torch oil wells across Iraq, Al- Jazeera television reported yesterday, citing an al-Sadr aide.

Militants loyal to al-Sadr yesterday broke into the headquarters of Iraq's South Oil Co., burning down at least 10 warehouses and the company's offices, the Associated Press reported.

OPEC, source of more than a third of the world's oil, raised oil production in July by 1.4 percent to an average of 29.71 million barrels a day, according to Bloomberg data. It was the highest since an average of 30.72 million in 1979, according to U.S. Energy Department figures.

``Non-OPEC nations can do nothing because they are producing at full capacity, and if you take OPEC most of them are producing at full capacity,'' former Saudi Arabian Oil Minister Sheikh Zaki Yamani said in a telephone interview from Sardinia. ``The only country which still has some spare capacity, Saudi Arabia, is prepared to pump up as much as it can.''

Economic Toll

Lehman Brothers, the fourth-biggest U.S. securities firm by capital, cut its forecasts for U.S. economic growth, inflation and interest rates as oil prices rose to a record. Lehman reduced its forecast for gross domestic product growth in 2005 to 3.3 percent from 3.7 percent, according to a report by Lehman economists Ethan Harris and Joseph Abate. For this year, the firm cut its growth forecast to 4.3 percent from 4.4 percent.

``The high price of oil will clearly have a negative, or dampening, effect on the economy and accounts for most of the reduction of growth,'' said Abate, a senior economist at Lehman Brothers in New York in an interview. ``It also acts as a tax on consumers.''

Estimates will have to be further revised if the price of oil stays at this level, Abate said.

``The more it builds into business and household psychologies the bigger the effect it will have on growth,'' Abate said.

Cut Taxes

Norwegian Finance Minister Per-Kristian Foss said he will cut taxes as record fuel prices boost the economy of the world's third-largest oil exporter. Foss also said he may target a higher value for the nation's $136 billion petroleum fund. The fund saves surplus oil revenue to provide pensions for the 4.5 million Norwegians, the second-richest Europeans after the 457,000 people of Luxembourg.

The average cost of oil used by U.S. refiners was $35.24 a barrel in 1981, according to the Energy Department. That's almost equivalent to $73 in 2004 dollars. Those gains came in the aftermath of the Arab oil embargo in 1974 and the Iranian revolution in 1979.

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