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Bloomberg: Oil Trades Near 10-Month High After Shell’s Nigeria Rig Attack

By Eduard Gismatullin

July 4 (Bloomberg) — Crude oil traded near a 10-month high in New York after Royal Dutch Shell Plc said militants attacked its rig in Nigeria, raising concern about further oil-supply disruptions from Africa’s largest producer.

Five expatriate contractors working for Lonestar Drilling Nigeria Ltd. were taken hostage, said Precious Okolobo, a spokesman for Shell’s Nigerian venture. The attack occurred early this morning in the Soku field, where the rig was drilling a well. No production was affected, he said.

“The oil sector is the one where geopolitical events play a very big part,” Tim Guinness, chairman of Guinness Atkinson Asset Management LLC, said from London. “We don’t know which one is going to next affect supply.”

Crude oil for August delivery rose 3 cents to $71.44 a barrel at 2:30 p.m. in electronic trading on the New York Mercantile Exchange. Open outcry trading is closed at Nymex today because of the Fourth of July holiday in the U.S.

At the same time, Paolo Scaroni, chief executive officer of Eni SpA, said force majeure at the company’s Nigerian Ogbainbiri flow station is still in place. Eni first made the declaration on June 19 after the facility was attacked by gunmen two days earlier.

Brent oil for August settlement gained 12 cents to $73.05 a barrel on the ICE Futures exchange in London.

The latest kidnappings in Nigeria occurred after the Movement for the Emancipation of the Niger Delta, or MEND, ended a one-month cease-fire this week. Jomo Gbomo, spokesman for MEND, said the group wasn’t involved.

Reduced Output

More than 200 expatriates have been kidnapped in the Niger Delta since the beginning of last year. Nigerian crude output has been reduced by about a quarter because of violence.

“Trading is likely to remain quiet” today because of the U.S. holiday, Barclays Capital analysts Kevin Norrish and Sudakshina Unnikrishnan wrote in a report. “U.S. refinery runs are currently very low — some 700,000 barrels per day below last year’s level.”

Oil on the Nymex rose 5.4 percent in the five trading days before today, partly on concern refinery breakdowns will slow U.S. gasoline output. Flint Hills Resources LP, a unit of Koch Industries Inc., and Valero Energy Corp. reported faults at plants in Texas.

Flint Hills shut a hydro-cracking unit at its 300,000 barrel-a-day refinery in Corpus Christi, Texas, on July 2, according to a report on a state Web site. The company hasn’t said whether the unit has been returned to service.

Corpus Christi

Valero Energy reported flaring of chemicals at its 340,000 barrel-a-day Corpus Christi refinery the same day. Coffeyville Resources LLC’s plant in Coffeyville, Kansas, was shut indefinitely on July 1 because of flooding.

U.S. refineries probably operated at 90.2 percent of capacity last week, according to a Bloomberg survey of analysts conducted before a government report this week. That’s below the 93.1 percent that units operated last year.

The U.S. Department of Energy will publish its refinery utilization and oil supply report tomorrow, a day later than usual, because of the holiday.

“The big picture is that supply is increasingly tight,” Guinness of Guinness Atkinson said. Oil “demand remains very strong.”

Gasoline demand in the U.S., the world’s biggest oil user, usually peaks June through August as summer holiday travel increases in the northern hemisphere.

Crude Inventories

The Energy Department report will probably show U.S. stockpiles of the fuel rose 500,000 barrels in the week to June 29, based on the median estimate from a Bloomberg survey of 15 analysts. Stockpiles held 202.6 million barrels on June 22, 4.4 percent less than the five-year average for the period.

Crude-oil inventories probably declined by 200,000 barrels as refiners increased gasoline production, according to the survey. Stockpiles held 350.9 million barrels the prior week, a nine-year high and 11 percent more than the five-year average.

In U.S. dollars, West Texas Intermediate, the New York- traded crude benchmark, has fallen about 5 percent in the past 12 months. Oil has dropped 12 percent in euros, 14 percent in British pounds and was little changed in yen.

“You have increased demand and we are moving into the hurricane season, and there is the summer driving season in the northern hemisphere,” said Peter McGuire, managing director of Commodity Warrants Australia in Sydney. “That could spike prices a little bit higher, but we are thinking it should consolidate within this range.”

OPEC’s Influence

The Organization of Petroleum Exporting Countries, the producer of about 40 percent of the world’s oil, last year agreed to cut crude supplies by 1.7 million barrels a day to maintain prices around $60 a barrel.

OPEC’s basket price, a weighted average of 11 blends produced by the member nations, rose 91 cents to $69.55 a barrel yesterday, an 11-month high.

“Our forecast is that we believe that OPEC could raise production, but OPEC runs its own race,” McGuire said.

To contact the reporter on this story: Eduard Gismatullin in London at [email protected] .

Last Updated: July 4, 2007 15:07 EDT

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