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Bloomberg: Crude Oil Is Steady Amid Signs Demand by Refineries Will Jump

By Mark Shenk

May 14 (Bloomberg) — Crude oil was little changed amid speculation that consumption will increase as refiners boost the production of gasoline and other fuels.

A government report will show that U.S. refineries raised operating rates for a third week, according to a Bloomberg News survey. Refiners upgrade units before the summer months when gasoline consumption peaks. Prices also rose after the Movement for the Emancipation of the Niger Delta said it plans to attack pipelines this week in Nigeria’s oil-producing region.

“The front month crude-oil contracts are going to rise as refineries come back online,” said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. “We will see increased demand for crude oil. Product stocks should increase, easing prices for the products.”

Crude oil for June delivery rose 12 cents to $62.49 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures touched $63.07, the highest since May 4. Prices are 14 percent lower than a year ago.

Gasoline for June delivery in New York fell 4.96 cents, or 2.1 percent, to $2.3025 a gallon. Futures touched $2.3744 a gallon, the highest since April 30.

Regular gasoline at the pump, averaged nationwide, rose 0.9 cent to a record $3.073 a gallon yesterday, according to AAA, the nation’s largest motorist organization. Gasoline prices are up 5.9 percent from a year ago.

The profit margin, or “crack,” for turning crude oil into fuels has more than tripled this year. It rose to $29.841 on May 11, the highest since at least 1989, based on closing futures prices in New York.

Refining Incentive

“With cracks where they are, every refinery in the world will be making as much product as they can,” said Kyle Cooper, director of research at IAF Advisors in Houston. “Eventually, we will see product stocks rise and crude-oil stocks fall.”

Inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, rose last week, according to the median of 12 responses in a Bloomberg News survey. Analysts were split over whether crude-oil stockpiles increased or declined last week.

MEND pledged to step up its attacks in the final days of the administration of President Olusegun Obasanjo, who hands over power to Umaru Yar’Adua on May 29. On May 1, the group kidnapped six expatriates working for Chevron Corp.’s Nigeria venture. One week later, the group damaged three pipelines operated by Eni SpA’s Nigeria unit, halting 98,000 barrels a day of production.

Delta Attacks

The group has attacked installations in the delta for the past year in a campaign to cripple Africa’s biggest oil industry. The raids forced Royal Dutch Shell Plc’s unit in Nigeria to halt output of about 500,000 barrels a day, almost a quarter of the country’s output.

Chevron Corp., the second-biggest U.S. oil company, said it will take several days to restore full output from Nigerian fields connected to a facility that was seized by villagers a week ago. The company shut 42,000 barrels of daily oil production at four fields in Nigeria’s Delta state on May 7 after villagers overran the Abiteye flow station, a nexus of onshore pipelines.

West African countries produce low-sulfur, or sweet, crude oil, prized by U.S. refiners because of the proportion of high- value gasoline it yields.

Brent crude oil for June settlement rose 7 cents to $66.90 a barrel on the London-based ICE Futures exchange. Futures touched $67.51, the highest since May 1.

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

Last Updated: May 14, 2007 14:41 EDT

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