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Crude crackle rattles nerves

London, July 3 (Reuters): Oil jumped to record highs of above $145 a barrel on Thursday as traders rushed to buy ahead of the long holiday weekend in the world’s top consumer to mark US Independence Day.

Expectation was high that a combination of a weak dollar, lower US crude stocks and tension between Israel and Iran would push prices to $150 before the close of trade, in line with a prediction made last month.

Investment bank Morgan Stanley said on June 6 that crude could reach $150 by July 4. US Nymex crude rose to a high of $145.85 a barrel. It was trading $1.78 up at $145.34 during mid-day trading.

London Brent crude hit an even higher peak of $146.69. It was trading $1.83 higher at $146.09.

“What is more concerning is it is very difficult to know why it is going up. No one really knows the answer,” said Colin Morton with Rensburg Fund Management.

Saudi oil minister Ali alNaimi was more reluctant to predict.

Asked at a conference in Madrid whether oil would hit $150, he replied, “If I knew that, I’d be in Las Vegas.”

Range of factors

Naimi also said Saudi Arabia would pump more oil if there was demand for it but that his customers were satisfied and that the market was driven by a range of factors, not by a lack of supply.

One of those factors is the weakening dollar.

The currency inched up after the rate hike by the European Central Bank, but it was still near a two-month low against the euro.

The weak dollar has helped to fuel this year’s rally across dollar-denominated commodities as investors seek to hedge against inflation and declines in other asset classes.

Oil prices, which have been edging higher since the start of the week, gained momentum on Wednesday after US government data showed a sharp fall in inventories.

Bullishness has been tempered slightly as high oil prices have started to erode demand.

But traders were unwilling to sell ahead of the US Independence Day holiday, which marks the peak of the US driving season, particularly in view of heightened tension between Israel and Iran.

Speculation has mounted that Israel could launch an attack on Iran’s nuclear plants, which Tehran has insisted are purely for peaceful purposes.

The market is apprehensive about a conflict that can disrupt oil shipments from the Gulf through the vital shipping route, the Strait of Hormuz.

Roughly 40 per cent of the world’s seaborne oil passes through the strait.

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