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AFX Asia (Focus): Oil up ahead of long UK weekend, underlying geopolitical tension

May 06, 2007

LONDON (XFN-ASIA) – Oil was up ahead of a three-day weekend in the UK as traders cleared positions, and geopolitical tensions lent underlying support.

Gains were capped, however, amid thin trading conditions, a healthy US crude supply and as Nigerian production looked likely to increase.

At 1.54 pm, London Brent crude for June delivery was up 35 cents at 66.40 usd. Meanwhile, New York crude for June delivery was down 3 cents at 63.16 usd a barrel.

“There usually is an increase (in prices) before a long weekend,” said Simon Wardell, Global Insight analyst.

Elsewhere, supply cuts from Nigeria were “still an issue,” said a trader.

News from Nigeria, Africa’s largest oil producer, that armed men abducted at least 12 foreigners overnight lifted prices early yesterday, but when some captives were reportedly released, prices eased.

Nigeria, an OPEC member, produces around 2.37 mln bpd and exports around 2.33 mln bpd, according to the cartel. However, output has been cut by over 500,000 bpd since early last year after militants attacked several oil fields.

Also, a tight gasoline supply outlook in the US ahead of the summer driving season propped up prices.

“The market is currently well supported by declining US gasoline stocks and geopolitical tension,” said Sucden analyst, Michael Davies.

Inventories of the motor fuel are down by around 15 pct from last year’s levels, amid a bout of refinery problems in the US. A weekly snapshot from the US Department earlier this week showed gasoline stocks fell for the twelfth week in a row, just weeks before demand is set to peak.

Wardell at Global Insight explained refinery troubles in the US, which have failed to build on gasoline inventories, have kept supply of the product down and prices up — consequently lifting crude.

Gains were limited, however, as production from Nigeria looked set to rise.

It is widely expected Nigeria’s 380,000 bpd Forcados fields in the Niger Delta will reopen in May after being shut for a year.

Shell, the field’s main operator, said it will resume operations “sometime in June,” provided security allows it.

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