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Oil Rises a Second Day on Equity Gains, Shell Pipeline Attack

Bloomberg.com

By Christian Schmollinger and Ben Sharples

June 26 (Bloomberg) — Crude oil rose for a second day, exceeding $70 a barrel, as Asian equities extended a global stock-market rally, raising expectations of fuel demand growth.

The MSCI Asia Pacific Index gained 1 percent, adding to increases in the Dow Jones Industrial Average and the Standard & Poor’s 500 yesterday. The dollar fell, set for a weekly loss against the euro. Militants said yesterday they attacked a Royal Dutch Shell Plc pipeline supplying an export terminal in Nigeria, Africa’s largest producer.

“We’ve really got the right mix of a couple of factors,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “Asian equities are up. The dollar weakened yesterday on top of the attack in Nigeria disrupting the Shell pipeline supply.”

Crude oil for August delivery rose as much as 54 cents, or 0.8 percent, to $70.77 a barrel in electronic trading on the New York Mercantile Exchange. It was at $70.66 a barrel at 12:31 p.m. Singapore time.

“The factor supporting oil is the situation in Nigeria,” said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. “It seems to have intensified and it’s something that’s helping keep prices at a higher level.”

Yesterday, the contract rose $1.56, or 2.3 percent, to settle at $70.23 a barrel. Oil has gained 1.5 percent this week after falling 3.5 percent last week.

‘Buying Support’

The MSCI Asia Pacific Index gained 1 percent to 102.81 as of 12:37 p.m. in Tokyo, taking its advance this week to 1.3 percent. Japan’s Nikkei 225 Stock Average added 0.5 percent.

The Standard & Poor’s 500 Index yesterday gained 2.1 percent to 920.26 and the Dow Jones Industrial Average rose 2.1 percent to 8,472.40 as investors were buoyed by Federal Reserve Chairman Ben S. Bernanke’s performance before the House Oversight Committee.

“It seems when the oil price dips into that high $60s it does attract buying support which has helped keep it there,” Moore said. “It is providing something of a short-term base to the oil price.”

Brent crude oil for August settlement rose as much as 42 cents, or 0.6 percent, to $70.20 a barrel on London’s ICE Futures Europe exchange. It increased $1.45, or 2.1 percent, to end yesterday’s session at $69.78 a barrel.

A falling dollar makes raw materials such as oil and gold an attractive alternative investment. The dollar traded at $1.4047 versus the euro at 12:48 p.m. in Singapore, following a 0.4 percent decline yesterday.

Nigerian Attack

Oil prices have been supported and supply curbed since December 2005 because of militant activity in the Niger River delta, Nigeria’s main oil-producing region. MEND has stepped up a sabotage campaign in the area since a military offensive began last month.

Fighters from the Nigerian group damaged the Bille-Krakrama pipeline, cutting supplies from Shell’s Cawthorne 1, 2 and 3 oil-pumping stations, MEND spokesman Jomo Gbomo said in an e- mail yesterday. A Shell spokeswoman confirmed an attack on a manifold on the pipeline and couldn’t say whether production was halted by the incident.

Nigeria produces so-called sweet, or low-sulfur, crude oil that is prized by refiners because yields a large amount of gasoline and diesel fuel when processed.

Gasoline for July delivery increased 0.16 cent, or 0.1 percent, to $1.8999 a gallon at 12:06 p.m. in Singapore. Yesterday, it gained 5.58 cents, or 3 percent, to end the session at $1.8983 a gallon.

Exxon Mobil Corp. shut a fluid catalytic cracker at the Baytown, Texas, refinery, the largest in the U.S., late yesterday, according to a union official.

The gasoline-making unit was taken down after the loss of a cooling tower, said the official. Other units related to the cooling tower are operating at reduced rates, the official said.

Refiners may have less incentive to produce gasoline as the so-called crack spread, or profit margin, between the motor fuel and crude oil has declined. The price difference has slid to $9.28 a barrel today, down 44 percent from $16.52 a barrel on June 16.

To contact the reporters on this story: Ben Sharples in Melbourne at [email protected]; Christian Schmollinger in Singapore at [email protected]

Last Updated: June 26, 2009 01:00 EDT

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