(Recasts, updates prices, market activity)
By Matthew Robinson
NEW YORK, June 6 (Reuters) - Oil jumped nearly 9 percent to
a record $139 a barrel on Friday, extending a two-day rally to
more than $16 as the slumping U.S. dollar and mounting tensions
between Israel and Iran attracted a stampede of buyers.
Oil prices could top $150 by July 4, one of the busiest
U.S. travel holidays, as strong demand in Asia triggers a
slowdown in shipments of crude to the United States, investment
bank Morgan Stanley said.
"We are calling for a short-term spike in oil prices," the
bank said in a research note.
U.S. crude <CLc1> settled up $10.75 at $138.54 a barrel
before touching an all-time high of $139.12 in its biggest gain
in dollar terms on record, adding to a rise of $5.49 on
Thursday. London Brent crude <LCOc1> settled $10.15 higher at
$137.69, off the record $138.12 hit earlier.
"It's eye-popping. It's absolutely stunning," said Chris
Feltin, analyst at Tristone CapitaL Inc in Calgary.
Oil has risen 44 percent this year, threatening economic
growth in major consumer countries including the United States,
whose economy already is hobbled by a housing crisis.
Analysts have said the dramatic rally in oil prices is due
to rising demand in China and other developing economies as
well as an influx of cash from investors seeking a hedge
against the weaker dollar and inflation.
The greenback extended weakness against other currencies
Friday on data showing the U.S. economy lost jobs for the fifth
straight month and the unemployment rate shot up to its highest
in more than three years. []
The drop in the dollar added to losses from Thursday when
European Central Bank President Jean-Claude Trichet said a
number of policymakers wanted higher interest rates, possibly
as soon as next month. []
"Obviously there's a lot of concern on the economic impacts
of a weakening U.S. dollar. That seems to be driving some of
the momentum here today," said Feltin.
Further support came from remarks by Israel's transport
minister that an attack on Iran's nuclear sites looked
"unavoidable." It was the most explicit threat yet against
Tehran from Prime Minister Ehud Olmert's government.
[]
Worries of a potential disruption of the OPEC member's
crude supply have helped support prices over the past year.
"We've had a huge historic rally on little fundamental
input, other than the weakness of the dollar and the news this
morning out of Israel that seems to have pushed some
geopolitical risk premium back in the market," said Jim
Ritterbusch, president of Ritterbusch & Associates in Galena,
Illinois.
BULLISH BANKS
Morgan Stanley forecast the diversion of Middle East oil
shipments away from the United States to Asian markets could
push U.S. crude to $150 a barrel by the U.S. July 4th holiday.
"Middle East oil exports are stable, but Asia is taking an
unprecedented share," Morgan Stanley said in a report, adding
U.S. inventories have dropped by 35 million barrels since
March.
"Robust Asian non-OECD demand growth, coupled with a
stagnant global oil supply backdrop, appears to be pricing out
Atlantic basin consumers while at the same time driving
Atlantic inventories to critically low levels."
The report added to a string of upward price forecast
revisions by analysts, with Goldman Sachs in May predicting
prices could tip $200 a barrel within the next two years.
A six-year rally in oil has sent prices up six-fold as
demand from emerging economies such as China and India strain
supplies.
High prices have started to eat away at global growth
however, with some consumers such as the United States and the
United Kingdom showing signs of lowering consumption.
Some Asian governments -- including India -- have decided
to cut fuel subsidies, stirring concern rising prices could cut
further into demand.
The International Energy Agency (IEA), an adviser to 27
industrialized countries, said it may cut its 2008 demand
growth projection further after having already more than halved
it to 1.03 million barrels per day (bpd).
(Additional reporting by Gene Ramos and Robert Gibbons in New
York; Alex Lawler and Santosh Menon in London; Maryelle
Demongeot in Singapore; Editing by David Gregorio)
