Oil prices Friday reached their highest level this year capping a strong week that saw prices rise more than 8 per cent. The increase was driven by increased tensions between Iran and the West and tighter conditions in the US petrol market.

The capture of British sailors last week by Iran has created nervousness in oil markets. This was underlined by the $5 surge in oil prices on Tuesday after rumours that a conflict had started between Iran and the US. Once the rumours were denied, prices eased, but they still moved higher over the rest of the week.

The price for Brent crude, the European oil benchmark, hit its highest level for the year Friday when it touched $69.14 a barrel, before easing to $68.52, up 60 cents on the day and surpassing the $69.0 level reached on Tuesday after rising $5 within a number of minutes. Brent rose more than 8 per cent last week, adding to the 4 per cent rise from the previous week.

The US benchmark, the West Texas Intermediate, gained 5 cents to $66.08 a barrel in late morning trade on the New York Mercantile Exchange, and was up almost 6 per cent on the week. The WTI price reached its high for the year on Tuesday of $68.09 a barrel after the $5 price surge.

One reason for the difference between the WTI and Brent prices is the tightness in the US storage market. Energy analysts said storage capacity is near full in the Midwest area where WTI is physically delivered, largely due to the high number of refineries that are either in maintenance or have halted production because of a fire or accident.

Analysts estimate that about 8 per cent of US refinery capacity is down due to fires and accidents.This has meant more crude is going into storage as it cannot be processed. Meanwhile, the reduced refinery activity is boosting petrol prices.

Nymex benchmark gasoline futures touched $2.1488 a gallon Friday, up one cent on the day, but up more than seven per cent on the week, and up more than 58 per cent from its low for the year in mid-January. The rise in petrol prices has boosted refiner margins, which analysts say will stimulate further petrol production in the coming weeks when some refineries are expected to come back on line.

Gold prices added $2 to $663.50/$664.00 a troy ounce Friday, and were up about 1 per cent on the week.

Copper prices also hit their highest level for the year when they reached $6,935 a tonne on the London Metal Exchange, before easing to $6,870 in late trade, up $115 on the day, and more than 2 per cent on the week.

The copper industry gathered in Santiago this week for its annual gathering when contract prices between miners and smelters are negotiated. CRU, the metals consultants, also held a copper meeting in the Chilean capital this week.

Huang Guoping, vice-president of China Minmetals, said copper demand in China, the metal’s biggest consumer, is expected to grow 21 per cent to between 4.5m and 4.7m tonnes by 2010 from 3.8m. Chinese copper demand rose 5.6 per cent in 2006, compared with 9.1 per cent growth in 2005.

Copper prices have also risen sharply over the past two months on forecasts of a deficit during the second quarter, the strongest period of the year for copper. This was not anticipated at the start of the year when copper prices suffered a large slide.

Nickel prices rose steadily last week after two weeks of wild swings. The three-month LME nickel price eased $50 to $43,800 a tonne Friday, but was up more than 3 per cent on the week.

Corn and wheat prices fell sharply Friday after a bigger than expected increase in US corn planting estimates. Soybean prices also eased in spite of a bigger-than-expected fall in soybean acreages.

London cocoa prices ended near a four-year high on concerns over west African mid-crops from dry weather. London cocoa futures ended at £1,058 a tonne, up £4 on the day.

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