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THE NEW YORK TIMES: Oil Bounces Back Toward $70 on Supply Concerns

Oil Bounces Back Toward $70 on Supply Concerns

By REUTERS
Published: May 18, 2006

Filed at 11:54 p.m. ET

SEOUL (Reuters) – Oil rebounded from five-week lows to near $70 a barrel on Friday despite higher U.S. oil inventories as investors remain concerned over any supply disruptions from Iran and Nigeria.

U.S. light crude oil (CLc1) was trading 38 cents higher at $69.83 a barrel by 0350 GMT, after gaining 76 cents on Thursday. London Brent (LCOc1) was up 36 cents at $70.03.

Prices picked up as traders saw a buying opportunity after a slide on Thursday to $67.85, the lowest since April 10, with the potential for supply disruptions still a worry despite fears of high costs creating inflation and hitting demand.

Gold also bounced back, riding on a weaker dollar as investors resurfaced after the metal shed more than 1 percent on Thursday, while platinum rose as much as 1.4 percent on fund buying driven by its bullish outlook.

“Not only in energy but in commodities altogether, I think it's still a mega-bull market that we are in,'' said John Brady, an energy broker with ABN AMRO in New York.

“An obviously longer geopolitical issue is on the back burner. Fundamentally, one of the big driving forces is a spare capacity issue,'' he added.

OPEC has been pumping at near full tilt in an attempt to calm prices but lower supplies from Nigeria and worries over Iran's nuclear dispute with the West helped drive oil to a record above $75 in April. Prices are still up 14 percent so far this year.

OPEC-member Iran has cut oil exports since April to match lower refinery demand but will restore shipments to more than 2.4 million barrels per day (bpd) in June, a top Iranian oil official said on Thursday.

EYES ON HIGH COST IMPACT

President Mahmoud Ahmadinejad on Thursday derided foes of Iran's nuclear work as mentally disturbed, ignoring a fresh plea by U.N. Secretary-General Kofi Annan for all sides in the dispute to calm their rhetoric.

Tehran insists its nuclear program is only to generate electricity for civilians use, but Western countries fear it could be developing nuclear weapons.

Activists in Nigeria's oil heartland have given Royal Dutch Shell (RDSa.L) promising signals over a possible return to oilfields it was forced to abandon after a series of militant raids three months ago, but Shell has lost 455,000 bpd of output since February.

Despite the loss of Nigeria's gasoline-rich crude, stocks of the auto fuel in top consumer the United States have been rising, with government data on Wednesday showing a 1.3 million-barrel build last week on high imports, the third week of rises.

“Petroleum statistics show stocks tend to be swelling and historically sizable, but the big problem is production is flat out and demand is keeping pace with the supply,'' Brady said.

However, in a sign high prices are taking their toll, industry figures showed U.S. demand for crude and petroleum products in April fell by 1.5 percent from a year earlier, with high pump prices cutting gasoline use by 1.9 percent.

Prices have fallen back 5 percent since late last week on concerns that high energy and material costs might reduce demand and slow global economies.

The United States and OPEC linchpin Saudi Arabia agree that high crude oil prices are bad for global economic growth, U.S. Secretary of State Condoleezza Rice said on Thursday.

But former Federal Reserve Chairman Alan Greenspan said on Thursday it was too soon to say how the latest rise in energy prices would impact consumer spending or feed through to inflation.

He said that up to now profits for firms outside the financial and energy sectors had not been hurt by higher energy costs.

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