Oil hits new peaks on Iran fears

Iranians have take to the streets to voice their opposition to the US

Crude oil prices have climbed to a record high in the UK, amid reports that the US is considering military options in the nuclear row with Iran.

UK benchmark Brent crude settled $1.57 higher at $68.86, after hitting a peak of $68.93, while US sweet light crude rose $1.36 to close at $68.75.

Washington has rejected a media report that it is preparing for a military strike on Iranian nuclear facilities.

Geopolitical tensions concerning Iran have kept oil prices high recently.

Price triggers

Prices have risen 11% so far in 2006 and are not far below the historic high of $70.85 reached last August as Hurricane Katrina battered oil facilities on the US Gulf coast.

In the UK, prices have now breached previous record peaks of $68.89 dollars hit during 2005's storms.

The market had become a bit too comfortable, expecting a diplomatic solution in Iran Tobin Gorey, Commonwealth Bank of Australia

Experts said almost all of Monday's gains were down to fears surrounding the oil-rich nation which could disrupt crude supplies.

"We might go up and test $70," said ABN Amro broker Lee Fader said, but he did add that significant supply disruption would be needed to push prices higher than the key $70 level.

Rising tension

EU foreign ministers discussed possible measures against Iran, including sanctions, on Monday, amid signs of a further rise in tension over Iran's nuclear intentions.

Iran, the world's fourth largest oil producer, says it needs nuclear power to generate electricity, but the US and EU are concerned it wants to develop an atomic bomb.

Although the US reiterated on Monday that it was a seeking a diplomatic solution to the row, some investors fear Washington may be running out of patience with Tehran.

"The market had become a bit too comfortable, expecting a diplomatic solution in Iran," Tobin Gorey, a commodities strategist at the Commonwealth Bank of Australia, said of Monday's rise.

Continuing instability in oil-producing regions of Nigeria has also helped to bolster prices.

Production totalling 500,000 barrels a day has been lost since February after attacks on oil facilities by rebel groups.