Oil prices climb in Asian trade on fears about fragility of truce in Lebanon

SINGAPORE (XFN-ASIA) - Oil prices climbed in Asian trading hours after an Israeli commando raid into Lebanon threatened to unravel a fragile truce, and after Iranian missile tests added to tension in the Middle East, dealers said.
At 10.35 am (0235 GMT) here, New York's main contract, light sweet crude for September delivery, was at 71.50 usd a barrel, up 0.36 usd from its close of 71.14 usd in the US Friday.
Brent North Sea crude for October delivery had risen 0.30 usd to 72.60 usd a barrel.
Prices fell briefly below 70 usd Friday, but failed to hold at those levels.
"The price tried to go below 70 usd on Friday, but such declines were not sustained so there was a rebound," said Dariusz Kolwalczyk, an investment strategist with CFC Seymour Securities in Hong Kong.
"The rebound was exacerbated by a rise in the geopolitical risk premium after Israel conducted this raid in Lebanon to stop the resupply of arms to Hezbollah.
"So this, sort of, increased tension in the region, and as a result we are moving higher," he said.
Israeli commandos sneaked into eastern Lebanon Saturday in a raid which defense officials said had been intended to prevent the smuggling of arms from Syria to the Hezbollah militia.
UN Secretary General Kofi Annan said the attack was a violation of a UN-brokered ceasefire that ended 34 days of fighting between Israeli forces and Hezbollah guerrillas in Lebanon.
As Lebanese and UN officials warned that such actions would jeopardize the shaky truce, Israel warned yesterday that it would keep up raids against Hezbollah to prevent Hezbollah from getting weapons from abroad.
Oil market analyst Kowalczyk said the spotlight was also on how Iran will respond to a UN Security Council resolution urging it to halt its uranium enrichment program by the end of this month or face the possibility of sanctions.
But insistence by Iran that a nuclear freeze is not on the agenda and the test-firing of a short-range missile yesterday during military exercises will not help ease tensions, Kowalczyk said.
This "highlights the fact that there is another confrontation in the making and therefore there is a higher geopolitical risk premium," Kowalczyk said.

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