LONDON (Thomson Financial) - Oil soared by close to $6 on Friday to get within touching distance of all time record highs on fears of Israeli action against Iran and weakness in the U.S. dollar.
At 3.11 p.m., New York-traded WTI crude for July delivery was up $5.83 at $133.62 a barrel, having hit an intraday high of $134.68 a barrel.On Thursday, the contract staged a dramatic turnaround, bouncing over $6 off its intraday low of $121.61 to close above $127 a barrel -- the largest ever one day-rise.
In London, Brent crude for July delivery was up $4.94 at $132.48 a barrel.
Two weeks ago prices hit oil time highs above $135 a barrel on both sides of the Atlantic, before falling on fears of lower demand due to the run-up in prices.
Prices shot higher on Friday after comments that an Israeli attack on Iranian nuclear sites looks 'unavoidable' from one of Prime Minister Ehud Olmert's deputies.
Speculation has mounted in recent weeks that Israel could be planning a pre-emptive strike against Iran due to its refusal to bow to Western pressure to abandon uranium enrichment projects, which could be used to make nuclear weapons.
'If Iran continues with its programme for developing nuclear weapons, we will attack it. The sanctions are ineffective,' Transport Minister Shaul Mofaz told the Yedioth Ahronoth newspaper.
'Attacking Iran, in order to stop its nuclear plans, will be unavoidable,' said the former army chief who has also been defence minister.
Any attack on Iran would likely see the Islamic regime retaliate by witholding crude exports and targeting key oil transport routes in the Straits of Hormuz -- where some 30 percent of global crude supplies pass through, analysts said.
'The reports of the Israeli comments have seen a huge spike in oil prices,' said Bank of Ireland analyst Paul Harris, though he argued any Israeli attack remained a remote possibility.
'Any attack would have to be sanctioned by the U.S. and they are facing political pressure already because of the gas prices topping $4 a gallon. A move against Iran would see that push through $5 a gallon, which is politically unviable with the election coming up.'
Crude has risen by over $12 a barrel since slumping to a 20-day low of $121.61 on Thursday morning. Prices rebounded after the dollar slumped due to signals from European Central Bank President Jean- Claude Trichet that the ECB may increase interest rates in July, leading one analyst to call yesterday's record breaking rebound the 'Trichet Rally'.
The dollar's decline was extended today by news U.S. unemployment has risen to 5.5 percent -- the highest level in four years.
Crude prices have been closely linked to the dollar in recent months, as falls in the greenback make dollar-priced commodities cheaper for holders of other currencies while also encouraging investors to buy hard assets like oil as a financial hedge.
Oil has also taken support from calls from U.S. investment bank Morgan Stanley for crude to hit $150 a barrel by July 4.
'We are calling for a short-term spike in oil prices,' the bank said in a research note.
Prices had been down earlier in the week due to fears over demand destruction from record prices and the cutting of fuel subsidies from some developing nations.
Oil prices were almost $14 dollars down from the record highs over $135 a barrel seen two weeks ago, leading some traders to speculate that prices had come down too far, too quickly, helping to fuel crude's dramatic rebound.
'The reality is that the market had been oversold in recent days and many traders got sucked in short looking for a break through $120.00 a barrel,' MF Global senior energy broker, Rob Laughlin.
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