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Oil Sets New High, Nears $120

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THE WALL STREET JOURNAL: Oil Sets New High, Nears $120

April 23, 2008

Crude-oil futures came within a dime of $120 a barrel for the first time Tuesday on signs of shaky supply, sturdy global demand and a fresh low for the dollar.

Light, sweet crude for May delivery settled at $119.37 a barrel, up $1.89, or 1.6%, on the New York Mercantile Exchange upon expiry and in intraday trading rose as high as $119.90. Crude has settled at a record in six of the last seven trading sessions.

Crude for June delivery starts trading as the front-month contract Wednesday.

Oil is up 85% from 52 weeks ago and has gained 23% in 2008. The latest impetus for buying came as Nigeria suffered further interruptions in output and China reported record oil imports last month.

“There doesn’t seem to be anything on the horizon that makes you want to get out of black gold,” said George Gero, vice president of global futures at RBC Capital Markets in New York.

Nigeria, producing below capacity, was buffeted again after rebels hit two oil pipelines there Monday. On the same day, a venture that includes Royal Dutch Shell PLC said it had been forced to shut in about 169,000 barrels a day of crude exports from its Bonny terminal in southern Nigeria through May after a separate pipeline attack last week.

A threatened labor strike at Ineos PLC’s 196,000 barrel-a-day Grangemouth refinery in the United Kingdom also stoked worries that a shutdown could disrupt production from North Sea oil fields.

At the same time, global oil demand is expected to rise about 1.3 million barrels a day this year to 87.2 million barrels a day, according to the International Energy Agency. Tempering concerns about the possibility of weakening demand in the wake of a slowdown in the U.S. economy, China imported a record 4.09 million barrels a day of crude oil last month, final data from its General Administration of Customs showed Tuesday.

“From the point of view of investors, the supply and demand fundamentals don’t look like they are going into oversupply territory anytime soon,” said Bart Melek, global commodity strategist at BMO Capital Markets in Toronto.

A major conference of the world’s largest oil consumers and producers ended Tuesday with a measured statement about the risks of oil prices. The International Energy Forum, after meeting in Rome this week, said in a statement that “oil prices should be at levels that are acceptable to producers and consumers to ensure global economic growth, particularly in developing countries.”

The dollar’s lows against the euro, which was at about $1.60 late Tuesday, has also fueled dollar-denominated crude’s rise as exporters adjust their prices to compensate for its weakness. Investment funds have poured into commodities, including crude, as a hedge against inflation.

Dollar deterioration and inflation expectations are “the most important factors” behind oil’s price rise, Société Générale analysts said in a note to clients. “At the same time, the supply and demand fundamentals have been supportive secondary factors, but important nonetheless.”

In other commodity markets:

CORN: Futures rallied amid speculative-led buying tied to gains in crude oil and on concerns over Midwestern planting delays due to wet weather. May corn at the Chicago Board of Trade rose 14 cents to settle at $5.9425 a bushel.

COPPER: Prices rallied on a strike against Chilean miner Codelco, the world’s biggest copper trader, coupled with ongoing strength in crude oil and weakness in the U.S. dollar. April copper on the Comex division of the Nymex rose 9.20 cents to $3.9900 a pound.

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