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Supply Worries, Sinking Dollar Pushes Crude to a New Record

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The Wall Street Journal: Supply Worries, Sinking Dollar Pushes Crude to a New Record

By DAVID BIRD
May 5, 2008 3:27 p.m.

NEW YORK — Crude-oil futures prices surged to a record high above $120 a barrel Monday, but settled just below that mark, spurred by renewed concerns over tightening supplies ahead of the peak demand summer driving season.

Analysts said a settlement above $120 a barrel would be a clear indication of a surge to $125 a barrel and beyond. But the contract settled just shy of the mark at $119.97 a barrel, 39 cents below the record peak of $120.36 a barrel hit earlier.

The spark was another rebel attack over the weekend on oil producing facilities in Nigeria, a major supplier of light, sweet crude oil especially favored at this time of year for its high gasoline yield.

“Upwards of 600,000 barrels a day of production is currently offline in Nigeria and a further deterioration of the security situation there will raise concerns,” said Addison Armstrong, an analyst at Tradition Energy, a brokerage in Stamford, Conn.

Royal Dutch Shell confirmed damage to oil delivery lines in the Bonny Light oil terminal and said unspecified levels of production were shut in, but expected the impact on supplies to be limited. The latest attack follows the shut in of another 164,000 barrels a day by Shell due to an attack.

Analysts said the market will be closely watching the situation in Nigeria, where the former leader of the rebel group The Movement for the Emancipation of the Niger Delta, or MEND, Henry Okah is scheduled to go on trial this week.

Nigeria has been the fourth-largest oil supplier to the U.S. in recent months, accounting for more than 10% of crude oil imports in the world’s biggest oil consumer.

News of a planned one-day strike on May 9 by workers at the port of Marseilles, France, which could impact operations of the nation’s major oil terminals, Fos-Lavera, also stimulated interest on the upside, traders said.

RBOB gasoline blendstock and heating oil futures posted strong gains, but didn’t reach the record highs of recent weeks, despite crude’s fresh high.

June gasoline settled up 8.65 cents higher at $3.0529 a gallon after a high of $3.0578 a gallon, the highest since April 28. Heating oil futures settled 8.78 cents higher at $3.3065 a gallon after a high of $3.3300 a gallon, the highest since April 24.

Natural Gas Also Jumps

Natural gas futures ended nearly 4% higher Monday, driven by record crude oil prices and forecasts of below-normal temperatures in the U.S. Midwest over the next two weeks.

Natural gas for June delivery on the New York Mercantile Exchange settled floor trade 40.1 cents higher, or 3.72%, at $11.178 a million British thermal units Monday after reaching a high of $11.221 in combined electronic and floor trade earlier in the day.

Nymex natural gas soared Monday in response to crude oil futures, which were propelled to a new intraday record of $120.36 a barrel following a weekend attack on Nigerian oil facilities. Natural gas sometimes trades in sympathy with crude oil and related products, which can be used as substitutes for natural gas in power plants and heating systems.

With mild weather creating little demand for natural gas for heating and cooling, traders are looking to the crude oil market for price signals, said Tom Saal, a broker with Commercial Brokerage Corp. in Miami.

“There’s a spillover of crude oil’s bullish momentum because of the lack of fundamentals affecting the natural gas market,” he said.

–Christine Buurma contributed to this article

Write to David Bird at [email protected]

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