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Bloomberg: Oil Falls to 6-Week Low as Refiners Increase Gasoline Output

EXTRACT: Militant raids in Africa’s largest oil-producing nation forced Royal Dutch Shell Plc to halt output of about 500,000 barrels a day, almost a quarter of the country’s production. Nigeria produces low-sulfur, or sweet, crude oil, prized by U.S. refiners because of the proportion of high-value gasoline it yields.

By Mark Shenk

May 7 (Bloomberg) — Crude oil fell to a six-week low and gasoline plunged on speculation that U.S. refiners will increase output of the motor fuel before the peak-demand driving season.

Gasoline supplies rose 100,000 barrels last week, the first increase in 13 weeks, according to the median of 13 responses in a Bloomberg News survey. Refineries probably operated at 89.3 percent of capacity, up 1 percentage point from the week before, the survey showed. The driving season begins with the Memorial Day holiday at the end of this month.

“Gasoline has been the leader for some time now,” said John Kilduff, vice president of risk management at Man Financial Inc. in New York. “We might see our first inventory build in a long time this week. If we get the feeling that inventories will rise through the end of the month a lot of the stark supply premium will evaporate from the price.”

Crude oil for June delivery fell 46 cents, or 0.7 percent, to settle at $61.47 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the lowest close since March 21. Futures are 12 percent lower than a year ago. Prices have declined for six consecutive sessions, the longest stretch since September.

The futures contracts for July through January are higher than the front-month contract. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Gasoline for June delivery in New York declined 2.68 cents, or 1.2 percent, to $2.1896 a gallon, the lowest close since April 20. Prices reached $2.455 a gallon on April 30, the highest since May 12, 2006.

Pump Prices

Regular gasoline at the pump, averaged nationwide, rose 0.1 cent to $3.035 a gallon yesterday, according to AAA, the nation’s largest motorist organization. Gasoline prices have surged 11 percent over the past month. Pump prices touched a record $3.057 a gallon on Sept. 2, 2005, after Hurricane Katrina damaged refineries and platforms along the Gulf of Mexico coast.

“It looks like refinery runs will increase and gasoline output will rise,” said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. “A few weeks ago we were seeing a rash of refinery closings. We are now getting timelines for repairs and reports that plants are restarting.”

Chevron Corp.’s venture in Nigeria today shut down 42,000 barrels a day of production in the Niger River delta after nearby villagers overran its Abiteye pumping station at 4 a.m. local time, the company said. Production has been stopped at the fields of Dibi, Utonana, Makaraba and Abiteye, Chevron spokesman Michael Barrett said in an e-mailed statement from London.

Militant Attacks

Militant raids in Africa’s largest oil-producing nation forced Royal Dutch Shell Plc to halt output of about 500,000 barrels a day, almost a quarter of the country’s production. Nigeria produces low-sulfur, or sweet, crude oil, prized by U.S. refiners because of the proportion of high-value gasoline it yields.

“There’s an expectation of unrest in Nigeria, it’s a cost that companies have to bear if they want to be active there,” Wittenauer said.

Brent crude oil for June settlement fell 87 cents, or 1.3 percent, to $64.44 a barrel on the London-based ICE Futures exchange, the lowest close since March 26.

West Texas Intermediate crude oil, or WTI, traded at a record discount against Brent in April, produced in the North Sea, because of rising inventories at Cushing, Oklahoma. Cushing is the delivery point for Nymex futures.

To contact the reporter on this story: Mark Shenk in New York at [email protected] .

Last Updated: May 7, 2007 15:18 EDT

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