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Crude Oil Breaches $117 Barrier

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THE WALL STREET JOURNAL: Crude Oil Breaches $117 Barrier

April 22, 2008; Page C14

Supply instability pushed crude-oil futures to their first close above $117 a barrel.

Light, sweet crude for May delivery settled up 79 cents, or 0.7%, at a record $117.48 a barrel on the New York Mercantile Exchange. The May contract expires Tuesday.

Benchmark crude futures have hit a record close in five of the last six trading sessions and are up 22% year-to-date.

In Nigeria, about 169,000 barrels a day of crude production was shut after an attack on a pipeline operated by Shell Petroleum Development Co. The company declared force majeure on its April and May oil delivery contracts from its 400,000-barrel-a-day Bonny fields effective April 22, a move that protects it from litigation if it fails to deliver on contractual obligations to buyers.

Nigeria is an important producer of high-quality light crude that is easily refined into gasoline. About a fifth of the country’s roughly 2.47 million barrels a day in production capacity is on hold because of security problems, the International Energy Agency reports.

Christopher Mennis, president of brokerage New Wave Energy in Aptos, Calif., said that “169,000 barrels in force majeure on Bonny Light is very significant. That trumped the market.”

The International Energy Agency’s head said tight supply and vigorous demand in China and other emerging markets are the main factors driving oil prices to records. Nobuo Tanaka, the Paris-based watchdog group’s executive director, said prices are too high for consumers.

“If there’s a perception global demand can offset lag of demand in the U.S., that’s going to throw a monkey wrench into the bears’ best-laid plans,” said Stephen Schork, editor of the Schork Report market newsletter.

Adding to perceptions of tight future supply, Saudi Arabia, the world’s biggest oil exporter, said during the weekend it has no plans to increase its oil production capacity beyond the amount it is already pursuing for several years until it gets clearer signs about future crude consumption.

Perceptions of tight supply come as consumption in the world’s largest oil-consuming nation loosens up. The Energy Information Administration, an independent analytical and statistical wing of the Energy Department, is expected to show Wednesday that U.S. crude-oil stockpiles grew by 1.5 million barrels last week, while gasoline stocks fell by 2.3 million barrels and stocks of distillate, which include heating oil and diesel, remained unchanged, according to a Dow Jones Newswires survey of analysts.

Other supply developments also factored into the market. In Mexico, oil production slipped 7.8% in the first quarter to 2.91 million barrels a day as output at the country’s traditional oil fields wanes, state oil company Petroleos Mexicanos said.

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