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Oil Jumps to Record, Nearing $50, on Threat to Nigerian Supply

Bloomberg: Oil Jumps to Record, Nearing $50, on Threat to Nigerian Supply

“Royal Dutch/Shell Group’s venture in Nigeria evacuated 235 employees from the Niger River delta Friday amid clashes between government troops and armed militants.”

Sept. 27 (Bloomberg) — Crude oil rose to a record $49.74 a barrel in New York, its eighth straight gain, on concern rebels may target output in Nigeria as U.S. refiners struggle to meet their needs after Hurricane Ivan cut Gulf of Mexico supplies.

Oil is up 53 percent this year. Royal Dutch/Shell Group’s venture in Nigeria evacuated 235 employees from the Niger River delta Friday amid clashes between government troops and armed militants. In the U.S., declining oil inventories, now close to a 29-year low, led the government to agree to loan oil from its emergency stockpile so refiners can make gasoline.

“The news from Nigeria is getting worse as the rebels may target production of a type of crude that the market can’t afford to lose,” said Deborah White, a Paris-based economist at Societe Generale. Prices in New York “could reach $50 on Wednesday because there’s a good chance we’ll see a new drop in crude, gasoline and distillate inventories” in the U.S.

Crude for November delivery rose 86 cents, or 1.8 percent, to $49.74 a barrel at 2:20 p.m. London time on the New York Mercantile Exchange, the highest since the contract started trading in 1983. The previous intraday record was $49.40 on Aug. 20, when there was concern the Organization of Petroleum Exporting Countries lacked production capacity to compensate for disruptions to Iraqi, Russian and Venezuelan supplies.

“Everything points to $50 a barrel,” said Lee Elliott, a broker at Man Financial in London. “There’s just no lid to the market, no bearish news at all. Hedge funds are adding extra long positions.” Long positions are bets prices will rise.

Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures for the first time in five weeks the week ended Sept. 21, when they doubled to 13,544 contracts, according to the U.S. Commodity Futures Trading Commission.

Risk to Growth

November Brent crude also reached a record, rising to $46.25 a barrel on London’s International Petroleum Exchange, the highest since the contract started trading in 1988.

Sustained high prices could hurt economic world economic growth next year, said economists including James Knightley at ING Financial Markets.

“The risk is that continued high prices erode purchasing power by consumers and businesses,” Knightley said from London, adding he expects prices to “gradually” fall because current levels “don’t truly reflect demand and supply.”

In October 1981, the spot price of Arab light crude, the benchmark before futures started trading, reached an inflation- adjusted $77.86 a barrel peak, measured in today’s dollars. The Iran-Iraq war, which started a year earlier, had reduced supplies from the Middle East.

Nigeria Security

Shell used helicopters and boats to carry out the evacuations in Nigeria at Soku and Ekulama, close to the city of Port Harcourt. The decision followed a threat made by a rebel leader known as Commander Abiye of the Niger Delta People’s Volunteer Force in a telephone interview with Reuters on Sept. 23, in which he said his forces might attack oil installations.

“The security situation in the area, especially on the waterways, is still tense,” Andy Corrigan, a Shell spokesman in London, said today. “Non-essential staff, evacuated earlier from certain locations, have not been returned. Production has not been affected.”

Violence in March of last year around the town of Warri led Shell, ChevronTexaco Corp. and Total SA to idle 37 percent of Nigerian output for two weeks. Chevron has been unable to restart 140,000 barrels of daily production.

Low Sulfur Content

Nigeria, which as Africa’s top oil producer pumps about 2.4 million barrels a day, was the fifth-largest supplier of crude to the U.S. in July, according to the U.S. energy department.

The 1.02 million barrels a day Nigeria shipped to the U.S. in July is equivalent to 6.6 percent of American daily demand. Bonny Light, whose low sulfur content makes it easier to refine, is one of the main Nigerian crude oils for export.

OPEC last month pumped an average 28.1 million barrels a day, the highest for the 10 members that exclude Iraq in 25 years, leaving the group of producers with less than 500,000 million barrels a day of surplus output capacity.

As of Friday, Hurricane Ivan had cut U.S. output by 10 million barrels in the Gulf of Mexico, which accounts for a quarter of the nation’s production. A government report on inventories will be published Wednesday.

The U.S. agreed to loan oil to refiners Friday. Shell Trading Co. U.S., a unit of Shell, will receive 1.4 million barrels of oil, and Placid Refining Co. LLC, which operates a refinery in Port Allen, Louisiana, will receive 300,000 barrels from the U.S. Strategic Petroleum Reserve.

Heating Oil Stocks

The government last used oil from the reserve in October 2002 after Hurricane Lili, when it loaned 296,000 barrels to Shell to prevent an interruption of pipeline shipments. The oil that went to Shell after Lili was returned within 60 days.

U.S. crude-oil inventories are 5.8 million barrels higher than the week ended Jan. 23, which was their lowest since September 1975. Supplies need to rise so that refiners can prepare stocks of heating oil during the fourth quarter, when demand peaks. Distillates are a group of fuels that include heating oil and diesel.

“Very low stock levels are putting a lot of pressure on the market,” said Renzo Mejia of Sucden (U.K.) Ltd., a London futures brokerage. “There’s concern heating-oil inventories are below what’s necessary.”

The week ended Sept. 17, U.S. inventories of heating oil were 9.6 percent below the average for this time of year in the previous five years, according to U.S. Energy Department data.

To contact the reporter on this story:

Alejandro Barbajosa in London at [email protected].

To contact the editor responsible for this story:

Tim Coulter at [email protected].

http://quote.bloomberg.com/apps/news?pid=10000006&sid=aKweB6ESzK8A&refer=home#

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