Oil falls from records but Mideast conflict rages
10:11 a.m. 07/17/2006 Provided by
By Simon Webb
LONDON (Reuters) - Oil slipped from record highs on Monday in volatile trading as fighting raged between Israel and Lebanese Hizbollah guerrillas.
Concern that the conflict could escalate and spread to Middle East oil producers had earlier sent London Brent crude to a record high.
London Brent for September was down 46 cents at $77.12 a barrel by 1359 GMT, after earlier touching a record $78.18 a barrel.
U.S. light crude was down 46 cents at $76.57 a barrel, over $2 below the high of $78.40 hit on Friday.
Both markets fell sharply after Israel's Channel 10 television cited a senior military official stating that Israel could end its Lebanon offensive within days. The Israeli government quickly denied the report, but it was enough to prompt a round of profit-taking after a four-day rally on oil.
"Given the importance of geopolitics to the market at the moment, prices will see-saw with the news flow," said Eoin O'Callaghan, economist at BNP Paribas.
"There has been so much geopolitical news in so short a time that you are going to get large fluctuations in prices as the news flow changes."
Israeli aircraft blasted Lebanon on Monday after Hizbollah rockets struck deeper than ever into Israel, with no diplomatic initiative in sight to end the fighting.
Neither Israel nor Lebanon are oil producers, but both lie at the heart of the Middle East, which collectively pumps nearly a third of global output.
REGIONAL HUE
The conflict threatens to suck in Hizbollah's Syrian and Iranian allies, and to compound the conflict between the West and Iran over Tehran's nuclear program.
"The crisis has quickly taken on a regional hue, with both Washington and Tel Aviv accusing Iran and Syria of orchestrating the attacks," said Washington-based energy consultants PFC in a report.
"As a result, U.S. policy toward Tehran is likely to harden even further, and could undermine already fraught efforts to resolve the Iranian uranium enrichment issue diplomatically."
The world's fourth largest oil exporter insists it is enriching uranium for electricity generation, but the United States fears that could be a front for bomb-making activities.
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