Oil Stays Aloft on Iran Tensions

June crude moves to around $74 a barrel.
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Updated from 12:26 p.m. EDT

Energy prices rose for a second session Tuesday on concerns that tensions with Iran over its nuclear ambitions will result in reduced oil supplies.

Light, sweet crude settled up 91 cents at $74.61 a barrel on Nymex. The closing price was the second-highest for the contract after April 21, when crude hit $75.17. Oil prices have climbed almost 50% since last year.

"One can't debate the fact that the energy markets have the wind at their backs, as geopolitical tensions, expanding speculative interest, and the advent of the U.S. driving and hurricane season have coalesced into a formidable bullish mix," said Edward Meir, an energy analyst with Man Financial in Darien, Conn.

Members of the U.N. Security Council met Tuesday in Paris to discuss how to stop Iranian uranium enrichment. The meeting comes before the full body is scheduled to meet May 9 in New York. A trade embargo and air strikes against Iranian nuclear sites are among some of the punitive measures the West could take against Tehran.

The Security Council is planning a "stiff international message" for Iran that may include use of armed force, the U.S. undersecretary of state for political affairs, Nicholas Burns, told reporters in Paris.

But Iranian officials have vowed to flout any sanctions and said there wasn't enough support for them. On Monday, Iran's Foreign Minister Manuchehr Mottaki said Russia and China have told Iran they are "against sanctions and military attacks," the

BBC

reported.

"There is a very wrong assumption held by some that the West can do anything it wants through the Security Council," Mottaki was quoted as saying in Iranian newspaper

Kayhan

.

Last Friday, Tehran ignored a deadline to halt its nuclear program and instead vowed to expand the activity and export its technology to other countries. A U.N. report last week said Iran has not made any moves to cut uranium enrichment, setting the stage for the council to take punitive measures against OPEC's second-largest crude producer.

The Iranian nuclear impasse and production cuts in Nigeria, one of the largest crude suppliers to the U.S., have buoyed crude prices in recent months. Nigerian output is down 25%, or 500,000 barrels a day, from rebel attacks on the country's platforms and pipelines. Oil giants, like

Royal Dutch Shell

(RDS.A)

, have been the focus of much of the attacks, with Shell losing 455,000 barrels per day.

Bolivia and Venezuela's recent moves to renationalize their oil and gas industries have also pressured prices. President Evo Morales of Bolivia, following up on campaign promises to end foreign control of the country's natural resources, renationalized its natural gas and oil industry on Monday. Morales gave foreign firms six months to cede control to a state-run company, or risk being thrown out of the country.

The moves echo Venezuela, where President Hugo Chavez has taken over 32 privately held fields and threatened to take over new ones in the country's oil-rich Orinoco River Basin.

"Oil issues around the globe show how terribly sensitive the markets are to the slightest threat to the delicate worldwide oil supply balance," said Phil Flynn, an energy analyst with Alaron Trading in Chicago."Whether it's a refinery fire in Italy or another leftist government looking to nationalize their oil industry as happened in Bolivia, the market madness in oil seems to have no end."

Razor thin supply margins, booming demand, large inflows of money from hedge funds and escalating conflicts in crude producing countries have driven crude prices up 17% this year. Iran's deputy oil minister M.H. Nejad Hosseinian said Tuesday oil prices may hit $100 a barrel this winter as demand outpaces supply.

"Oil in the short term cannot be increased," Hosseinian was reported as saying at a press conference in New Delhi,

Dow Jones

reported.

Skyrocketing demand from China and India, along with a rebounding U.S. economy and lost production in the Gulf of Mexico, have pressured supplies and played a central role in keeping oil above $60.

Six months after Hurricanes Katrina and Rita hit the Gulf Coast, 22% of the area's oil production and 13% of its natural gas output is still shut down. The pair of hurricanes destroyed 113 platforms and damaged 457 pipelines, the Minerals Management Service, which oversees offshore drilling, said in a revised assessment Monday.

Heavy refinery outages have also pressured prices. Refiners have been running at lower rates as they switch over to cleaner, summer blends of gasoline and phase out methyl tertiary butyl ether, a gasoline additive linked to ground water pollution, for ethanol. In the past few weeks, refiners have been slowly returning to full operation, and analysts are forecasting their run-rates rose to 89% last week.

Lower refining operations have translated into higher crude supplies. Crude likely rose 500,000 barrels from 345 million barrels last week, analysts polled by

Bloomberg

predicted. But as crude, which is processed into gasoline and other products, goes up, gasoline production falls. Gasoline inventories likely fell by 1 million barrels from 200.6 million barrels the prior week. Distillates likely declined by 250,000 barrels from 115.6 million barrels.

The rest of the energy sector followed crude higher Tuesday, with gasoline prices rising 3 cents to $2.17 a gallon and heating oil increasing 2 cents to $2.07 a gallon. Natural gas added 5 cents to settle at $6.75 per million British thermal units.

High oil prices have increased energy companies' earnings this quarter.

ConocoPhillips'

(COP) - Get Report

earnings jumped 13% to $3.29 billion, or $2.34 a share. Revenue climbed to $47.9 billion from $38.9 billion during the same period last year.

Exxon Mobil

(XOM) - Get Report

saw its quarterly net income rise nearly 7% to $8.4 billion, or $1.37 a share, on revenues of $88.9 billion.

Chevron

(CVX) - Get Report

said its net income climbed 49% to $4 billion, or $1.80 a share. Sales surged to $54.6 billion from $41.6 billion because of higher crude prices and the acquisition of Unocal.

On Thursday, Shell and

Total S.A.

(TOT) - Get Report

will release their earnings.