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Bloomberg: Oil Nears $70 for First Time in 9-Months on Nigeria Strike Plan

By Mark Shenk

June 18 (Bloomberg) — Crude oil in New York approached $70 a barrel for first time since September after Nigerian unions planned a strike this week, threatening supplies from Africa’s biggest oil producer.

Oil production is likely to be affected during the strike as Nigeria’s two main oil unions plan to participate, a labor leader said. Nigeria produces low-sulfur, or sweet, crude oil, prized by U.S. refiners because of the high proportion of gasoline it yields. New York oil reached a record $78.40 a barrel on July 14 on concern that Middle East unrest would cut oil shipments.

“The bulls are in complete control of the market right now,” said John Kilduff, vice president of risk management at Man Financial Inc. in New York. “Nigeria is a very important source of oil that is needed by our very-stressed gasoline production complex. The trouble in the Middle East, be it Iran, Lebanon or even Pakistan, isn’t hurting either.”

Crude oil for July delivery rose 68 cents, or 1 percent, to $68.68 a barrel at 1:10 p.m. on the New York Mercantile Exchange. Futures touched $69.05 a barrel, the highest intraday price since Sept. 5. Prices are down 1.7 percent from a year ago.

Brent crude oil for August settlement rose 46 cents, or 0.6 percent, to $71.93 a barrel on the London-based ICE Futures exchange. Futures touched $72.25, the highest since Aug. 28.

The strike is called for June 20 to protest increases in taxes and domestic fuel prices, a labor leader said.

“It is a total action,” said Lumumba Okugbawa, deputy general secretary of the Petroleum & Natural Gas Senior Staff Association of Nigeria, or Pengassan. “It will affect oil production,” including the loading of crude oil, he said. Pengassan has been directed to take the broadest measures ever to shut down work.

Production Cuts

Chevron Corp. halted 42,000 barrels a day of oil output following a raid on a facility yesterday. Armed youths raided the Abiteye flow station, causing some damage to the facility, Chevron spokesman Femi Odumabo said in an interview. The station was also shut down for several days last month following a dispute with a local community.

Eni SpA said armed militants attacked one of its flow stations in Nigeria yesterday, leaving 27 people unaccounted for. It couldn’t say immediately whether the attack affected production.

Militant raids since the beginning of 2006 have forced Royal Dutch Shell Plc and Eni units in Nigeria to halt output totaling more than 600,000 barrels a day, more than a quarter of the country’s production.

“This is a particularly bad time to lose Nigerian production because gasoline supplies are still a concern,” said Rick Mueller, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. “Nigerian crude has a high gasoline yield and refiners will scramble to find substitutes, which will push Brent and WTI higher.”

West Texas Discount

West Texas Intermediate crude oil, or WTI, the U.S. benchmark, traded at a $3.27 a barrel discount to Brent today, the lowest since May 7. WTI traded at a record $6.54 a barrel discount against Brent on May 24, based on closing futures prices. WTI prices were depressed because of rising oil supplies in Cushing, Oklahoma, the delivery point for New York futures.

U.S. gasoline supplies in the week ended June 8 were 5.2 percent below the five-year average for the period, the Energy Department said last week. Crude-oil prices often follow gasoline during the driving season, which lasts from Memorial Day weekend in late May to Labor Day in early September.

U.S. refineries operated at 89.2 percent of capacity in the week ended June 8, the lowest rate for the period in 15 years, according to the Energy Department. Refineries in the U.S. and Canada have unexpectedly shut units this spring because of fires and power outrages, paring gasoline production.

Gasoline for July delivery in New York rose 0.32 cent to $2.2633 a gallon. Futures touched $2.28, the highest since may 30.

Middle East

“There’s still concern about U.S. gasoline supplies, which is underpinning the oil market,” said Paul Crovo, a Philadelphia-based oil analyst for PNC Wealth Management. “There are also geopolitical concerns in the Middle East. Iran is being uncooperative, the dispute between Israel and Hamas is heating up and there are the problems in Lebanon.”

Fighting in Lebanon between Israel and the Islamic militia Hezbollah, which was supported by Iran, spurred last summer’s rally. The Middle East is the source of a third of the world’s oil output.

Iran has ignored United Nations deadlines to halt a uranium- enrichment program and says further sanctions won’t affect its plans to develop nuclear energy. The U.S. has led international efforts to force Iran to give up enrichment because of concern the technology could be used to develop nuclear weapons.

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

Last Updated: June 18, 2007 13:25 EDT

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