New nine month highs for world oil prices as the Gaza strip fighting and takeover by Hamas boosted speculative activity, helped by those continuing supply problems in the US.
Not helping over the weekend were reports in US newspapers of a split in the Bush administration over how to handle Iran's nuclear and regional ambitions between the likes of Vice President Dick Cheney, the man who drove much of the Iraq war involvement of the US, and Secretary of State Condoleezza Rice, who wants a more measured approach to the issue.
The suggestion seems to be that if Cheney's lot wins the argument then we could see US military action directed against Iran, which would lift tensions considerably, especially as Iran is now a major player in the tangled mess that is Iraq.
Oil prices actually hit 10-month highs in trading before closing a touch lower.
US prices rose for the third day because the midweek update on stocks of oil and products like petrol showed a surprise fall. Not helping sentiment was an outage reported Friday at a major refining complex.
The European marker crude, Bent, which is now the best indicator of world prices for technical reasons, ended 11 US cents higher at $US71.47 a barrel in London, after hitting $71.88, the highest level since August last year.
The Nymex West Texas Intermediate contract settled 35 US cents higher at $US68.00 after hitting a fresh nine-month high of $US68.30 during Friday's trading.
West Texas Intermediate crude oil, or WTI, has been trading at a discount for months now because of an oversupply of that type of crude in the Cushing area of Oklahoma, where futures contracts for physical crude is deliverable. That's because of the production problems at a number of major US refineries which use WTI to produce petrol and other lighter products.
Markets were unsettled by the surprise success of Hamas fighters in taking control of Gaza, effectively splitting the Palestinian state into two. The West Bank remains controlled by Fatah.
Rising oil and petrol prices helped push up headline consumer prices by 0.7 per cent in May, but when food and energy prices were stripped out of the analysis, core inflation was up just 0.1 per cent, a sign that inflation is not a real problem.
That took the weight off interest rates and led some commodity prices to lower levels.
Despite this market volatility US petrol prices are actually falling at the moment and look like continuing on a downward trend for several more weeks. It's all part of the vagaries of the world and US petrol markets (as we know here).
After setting record highs less than a month ago, gasoline prices are on the way down.
US motorists have been told to expect cheaper petrol until Independence Day, July 4, and after that it will be in the hands of nature in the shape of the hurricane season.
Average US retail petrol prices have fallen from a record high of $US3.23 a gallon at the end of May to about $US3.05 late last week.
But petrol futures prices on the New York Mercantile Exchange have fallen much further, down around 45 per cent since late April when they hit a high of $US2.44 a gallon.
Estimates are now for retail prices to sink to a range of $US2.40 to $US2.60 a barrel in later summer: that's conditional on a mild hurricane season. The US experienced a benign season last year after the Katrina disaster of 2005
US retail prices started 2007 around $US2 a gallon, but then rose by more than 50 per cent as production problems at a number of refineries added to the 30 per cent rise in crude oil prices.
Prices should rise from July 4 onwards simply because of greater demand in the heart of the holidays, and lower IS stocks (they are down six per cent on last year).
A hurricane or two would spook prices higher and they could return to more than $US3 a gallon in August, and then ease from late September onwards, nature willing.
