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Oil back above $US131 on supply risks

The Australian

Oil back above $US131 on supply risks

Gregory Meyer | May 29, 2008

OIL pushed back above $US131 a barrel and petrol broke records as supply concerns overrode worries lofty prices will reduce demand.

Light, sweet crude for July delivery settled up $US2.18, or 1.7 per cent, at $US131.03 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled $US2.62 higher at $US130.93 a barrel. 

Nymex crude turned around after dipping below $US126 a barrel early in the session, fuelled in part by a Nigerian militant group’s threats of attacks and bombings in the oil-rich Niger Delta. 

A militant attack over the weekend on a Royal Dutch Shell oil facility knocked out about 130,000 barrels in Nigeria’s daily oil production, the country’s oil minister said earlier. The closure adds to the hundreds of thousands of barrels already shut in from Nigeria, Africa’s largest oil exporter. 

Buying sentiment was bolstered by a note to clients from Morgan Stanley, an investment bank with a large oil trading operation. The note said limits on world oil supply could “easily” lift Brent crude to an unprecedented $US150 a barrel. 

“In our view, oil prices are soaring because supply constraints are biting against the backdrop of still-strong global demand,” Morgan Stanley said. “The supply limitations are both perceived and real; there is no proven ‘shortage’ of crude or product, but spot outages and tight markets have created fears of one.” 

The International Energy Agency predicts world oil demand will increase by 1 million barrels a day to 86.8 million barrels a day this year as oil use grows in emerging economies such as China. 

In the US, the world’s largest oil consumer, demand has been wilting amid record high prices and a faltering economy. The Energy Information Administration reported US oil demand fell by 4.3 per cent, or nearly 900,000 barrels a day, in the first quarter, to 19.9 million barrels a day. That’s the lowest level of consumption for any quarter since mid-2003. 

In Europe, truckers and farmers have staged protests against fuel prices this week. Asian countries that subsidise fuel costs are re-evaluating their budgets as oil hovers close to records, with Indonesia, Taiwan, Sri Lanka and Bangladesh recently hiking fuel prices. Analysts say others could follow suit. 

From its May 22 intraday peak of $US135.09 a barrel to the intraday low of $US125.96 a barrel overnight, Nymex crude had fallen more than $US9. Market observers said the drop echoed other steep declines earlier this year that were quickly replaced by rallies to new records. 

“You see it come off $US10, and then the bulls come right back in,” said Stephen Schork, publisher of the Schork Report energy market newsletter. 

Front-month June reformulated petrol blendstock, or RBOB, climbed US6.46c, or 1.9 per cent, to settle at $US3.4476 a gallon, a record high. June heating oil rose US2.51c, or 0.7 per cent, to settle at $US3.8243 a gallon. 

An updated picture of US demand is expected tonight, when the EIA releases petroleum data for the week ended May 23. Analysts polled by Dow Jones Newswires estimate US petrol stockpiles fell by 300,000 barrels, distillates stockpiles rose by 800,000 barrels and crude stocks were unchanged. 

Dow Jones Newswires

http://www.theaustralian.news.com.au/story/0,25197,23776423-20142,00.html

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