Oil Rises to a Record $122.73 on Nigeria Attack, Demand Growth

Bloomberg: Oil Rises to a Record $122.73 on Nigeria Attack, Demand Growth

By Mark Shenk

May 6 (Bloomberg) — Crude oil rose to a record $122.73 a barrel in New York on threats to supply in Nigeria and Iraq and growing Asian fuel consumption.

Royal Dutch Shell Plc said a militant attack over the weekend damaged a pump station in Nigeria, where violence has cut exports from Africa’s biggest oil producer. Economic growth in China, the world’s second-biggest fuel consumer, will be 10.8 percent this quarter, State Information Center economists wrote in the official China Securities Journal today.

“The price keeps changing but not the reasons for the rally,” said Adam Sieminski, Deutsche Bank’s chief energy economist, in Washington. “Until the fundamental supply and demand levers start to shift and the psychology changes we will continue to see new records.”

Crude oil for June delivery rose $1.87, or 1.6 percent, to settle at $121.84 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the highest close since trading began in 1983. Futures have gained 97 percent from a year ago.

Supply shortfalls will probably send oil to between $150 and $200 a barrel within two years, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.

“We will have to see stories of the economy in China, Asia, slowing to send prices lower,” Sieminski said. “We haven’t seen them yet, but at some point in the future we may. Then oil demand growth will slow down.”

Chinese Growth

Chinese oil consumption will climb 4.7 percent to 7.89 million barrels a day this year, the International Energy Agency said on April 11. Global demand will rise 1.5 percent to 87.23 million barrels a day, the IEA said. The Paris-based agency is an adviser to 27 industrialized nations.

Brent crude oil for June settlement rose $2.32, or 2 percent, to close at a record $120.31 a barrel on London’s ICE Futures Europe exchange. The contract touched $120.99 today, an all-time high intraday price.

“The crude-oil market is showing little sign of finding a top,” said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. “Supply is tight, with OPEC keeping output steady, falling production at some of the world’s biggest fields and the disruptions in Nigeria.”

The Organization of Petroleum Exporting Countries has no plan to hold an emergency meeting before a scheduled Sept. 9 gathering, members said over the past week. OPEC has rebuffed requests from consuming nations for more oil, arguing that supply is adequate.

“The rally is a combination of two things, significant supply disruptions and inflation,” said John Kilduff, vice president of risk management at MF Global Ltd. in New York. “The recent attacks in Nigeria have amounted to a serious supply disruption event, which is the last thing consumers needed.”

Nigerian Disruptions

About 164,000 barrels a day of production attributable to Shell are off line in Nigeria, Shell spokesman Rainer Winzenried said. The company lost an average 156,000 barrels a day of Nigerian output in the first quarter, it reported last week.

The Movement for the Emancipation of the Niger Delta, or MEND, which claimed responsibility for the assault, has forced the company to cut exports of Bonny Light crude by at least 170,000 barrels a day.

Exxon Mobil Corp.’s Nigeria unit will probably return to its normal rate of oil production of about 860,000 barrels a day by the middle of the week, following settlement of a strike last week, a government spokesman said.

OPEC produced an average 32.105 million barrels of crude oil a day last month, down 320,000 barrels from March, according to a Bloomberg News survey of oil companies, producers and analysts.

Plunging Output

Nigerian production declined 160,000 barrels to an average 1.88 million barrels a day, the lowest since August 1999, the survey showed.

Turkey’s army stepped up security measures at the country’s border with Iraq and placed its forces there on “red alert” in anticipation of cross-border attacks by Kurdish militants, Sabah newspaper said. Turkey’s army said on May 2 that more than 150 fighters from the Kurdistan Workers’ Party were killed in air raids on the group’s camps in northern Iraq.

“Inflation concerns are back in play due to some of the recent economic data points,” Kilduff said “Monetary policy may be a bit too loose given the most recent GDP and employment data in the U.S. Throw in a bit of bullish enthusiasm from Goldman Sachs and you have the makings for more record prices.”

Investors moved to commodities as a hedge against the dollar as the currency fell against the euro, and as an alternative to equity and bond markets. The U.S. currency fell 0.2 percent to $1.5527 against the euro at 3:07 p.m. from $1.5496 yesterday. The dollar reached a record low of $1.6019 per euro on April 22.

“The last few days we’ve all been looking for facts that fit the move in prices,” said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. “For the most part the increase in prices is due to momentum, not any specific headline.”

To contact the reporter on this story: Mark Shenk in New York at [email protected].

Last Updated: May 6, 2008 15:53 EDT

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