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Pipeline Attack in Nigeria Pushes Crude Oil Higher

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Pipeline Attack in Nigeria Pushes Crude Oil Higher

July 29, 2008; Page C12

NEW YORK — Crude-oil futures edged higher on supply interruptions in Nigeria and escalating rhetoric from Iran, though concerns over weakening demand continued to weigh on the market.

[Crude-Oil Futures]

Light, sweet crude for September delivery settled $1.47, or 1.19% higher, at $124.73 a barrel on the New York Mercantile Exchange.

Oil futures closed in positive territory Monday for only the third time in the last 10 trading days. Since reaching a record high of $145.29 a barrel July 3, oil prices have declined more than $20, or 14%, halting a historic rally.

Crude futures got a leg up when Royal Dutch Shell PLC confirmed Monday that some of its production had been disrupted in Nigeria after an attack on its 130,000-barrel-a-day Nembe Creek pipeline. The African nation’s main militant group said it bombed two oil pipelines early Monday. Whether a second pipeline had in fact been damaged is still unconfirmed.

Shell has yet to clarify the extent of the damage to Nembe Creek, but oil traders see Nigerian production problems as the key element keeping prices buoyant.

“That might actually be the reason these other bearish factors are being totally overlooked for the time being,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA in New York. Nigeria produces highly viscous and low-sulfur crude that is coveted by refiners due to its relatively high yields of light products such as gasoline.

Data released by the U.S. Department of Transportation showing a 3.7% drop in vehicle-miles traveled in May versus a year ago muted the impact of the bullish international news. The decline in miles driven underscores the extent that U.S. demand for petroleum products is eroding in the face of scalding gasoline prices.

“Consumption has been down, here in the U.S., and that’s been tempering these problems that we’ve had,” said Mark Waggoner, president of Excel Futures in Newport Beach, Calif. “It’s an ongoing tug of war between the bullish and the bearish news.”

Tensions between Iran and the U.S. resurfaced as a weekend statement by Iran’s President Mahmoud Ahmadinejad revealed Tehran has expanded its nuclear-enrichment program, ignoring calls for a freeze.

Mr. Ahmadinejad also told NBC television in an interview aired Monday that a genuine shift in the U.S.’s approach to Iran would garner a positive response from Tehran.

The strife in Nigeria, which continues to keep high-quality crude flows off the global market, has affected traders more than the “saber-rattling that’s coming out of Iran,” Mr. Waggoner said.

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