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Bloomberg: Oil Trades Near 10-Month High on Supply Risk, U.S. Gasoline

By Christian Schmollinger and Gavin Evans

July 5 (Bloomberg) — Crude oil traded near a 10-month high in New York on concern renewed violence in Nigeria and refinery breakdowns may restrict U.S. fuel supplies.

Royal Dutch Shell Plc said five expatriate contractors were abducted from a rig in Nigeria, where militant groups this week ended a one-month truce with the government. A U.S. government report today will probably show the nation’s gasoline stockpiles remained below the five-year average as rising demand and plant faults hamper refiners’ efforts to store fuel.

“The gasoline situation in the U.S. is the biggest driver with current demand being so high right now,” said Steve Rowles, an analyst at CFC Seymour Ltd. in Hong Kong. “Having terrorism in Nigeria is just part of the game now.”

Crude oil for August delivery was at $71.34 a barrel, down 7 cents from the close on July 3, in after-hours electronic trading on the New York Mercantile Exchange at 3:04 p.m. in Singapore.

Oil traded as high as $71.50 yesterday when floor trading was closed for the U.S. Independence Day holiday, the highest intraday price since Aug. 28 last year. The exchange will combine yesterday’s trades with those from today for settlement purposes.

Brent crude for August settlement was at $73.00 a barrel, down 5 cents, on the ICE Futures exchange in London at 2:37 p.m. Singapore time. Yesterday’s close of $73.05 was the highest since Aug. 22.

Nigeria was the fourth-largest source of U.S. oil imports in the first four months of the year, according to Energy Department data.

Geopolitics, Gasoline

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.

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

“We think demand is pretty strong,” said Tobin Gorey, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “If prices are already high in the summer, then you’d think they’re probably going higher” later in the year when heating demand picks up, he said.

Gasoline for August delivery was at $2.2679, up 0.44 cent from the July 3 close, in electronic trading on Nymex at 2:49 p.m. Singapore time.

An Energy Department report today will probably show U.S. stockpiles of the fuel rose 500,000 barrels last week, 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.

Oil Inventories

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

The U.S. Energy Department will release the report at 10:30 a.m. Washington time.

A shortage of refining capacity will probably keep oil prices between $70 and $72 a barrel in coming months, before falling back toward $60 a barrel, Algeria’s Oil Minister Chakib Khelil said yesterday.

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, cut deliveries last year. The 12-member group, including Algeria, will review its production ceiling in September.

“We are not going to reduce production for sure,” Khelil said.

World oil demand peaks in the fourth quarter. Consumption will reach 88 million barrels a day then, from an estimated 84.6 million in the second quarter, the International Energy agency said in a June 12 forecast.

“The fact that OPEC probably aren’t going to change any production levels is more of a stimulus on price than a lot of other things,” said CFC Seymour’s Rowles.

Fourth-Quarter Premium

The premium investors are paying for fourth-quarter supply has narrowed as summer fuel concerns pushed near-term prices higher and the prospects of increased OPEC supply capped later- dated prices. The December premium over August deliveries fell to $1.05 a barrel, from $2.53 four weeks earlier.

Oil may have to rise further to prompt an increase in OPEC supplies, given the discount in the group’s crude oil prices and the decline in the U.S. dollar, Commonwealth’s Gorey said.

OPEC may also be “much less forthright and willing to put clear price levels and numbers on the top-side,” he said.

The OPEC basket, an index based on the main crude grades of the member states, was at $69.55 a barrel on July 3. The U.S. dollar traded near a record-low against the euro today on expectations the European Central Bank will signal at least one more interest-rate increase this year.

To contact the reporters on this story: Christian Schmollinger in Singapore at [email protected] ; Gavin Evans in Wellington at [email protected]

Last Updated: July 5, 2007 03:06 EDT

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