Oil Tops $71 on Nigeria Attacks

By: Reuters | 29 Jun 2009 | 12:23 PM ET
Oil rose about $2 to top $71 a barrel Monday, lifted by word of fresh rebel attacks on oil installations in Nigeria and gains in equity markets.

Nigeria's main militant group said its fighters had attacked an oil facility belonging to Royal Dutch Shell in the Niger Delta on Monday, days after President Umaru Yar'Adua proposed an amnesty.
Further support came as U.S. stocks opened higher on signs of life in the global economy, which kept investors optimistic over the prospect of a recovery.

"Equities are a little bit stronger and that has been helping the market," said Peter Beutel, president of Cameron Hanover in New Canaan, Conn., adding that buying by funds had been strong.

"Anytime that we see the Dow Jones higher, the funds take that as a sign that the economy is going to strengthen and that oil demand will strengthen along with that," he added.

Signs of a turnaround in the global economy have helped lift crude prices up from below $40 a barrel in February. The economic crisis has battered global fuel demand, knocking crude off record highs set above $147 a barrel last year.

The U.S. Energy Information Administration revised up April U.S. oil demand by 1.18 percent from its early estimate of 18.255 million barrels per day, suggesting a potential turnaround in the U.S. economy.

The EIA revision came after a bullish International Energy Agency mid-term oil demand forecast Monday, which said that there was a chance of an extended contraction and that the threat of a supply crunch had only receded, not gone away.

Based on a higher economic growth scenario, the IEA predicted Monday product demand would grow by 0.6 percent, or 540,000 bpd on average, between 2008 and 2014, taking demand from 85.8 million bpd to 89 million bpd.

Number 2 oil consumer China unexpectedly increased gasoline and diesel prices Monday by nearly 9 percent and 10 percent respectively.

Nigeria

Crude was bolstered by militant activity in Nigeria as fighters forced production outages in the West African country.

The Movement for the Emancipation of the Niger Delta (MEND) said its fighters struck the Shell Forcados platform in the Delta state at about 0230 GMT.

There was no immediate independent confirmation but Shell said it shut in some oil production at its western operations in the Delta while it investigated reports of attacks.

"The Nigerian situation is the main factor in the market," said Mike Wittner, global head of oil research at Societe Generale. "The attacks appear to be removing some oil production capacity from the market."

Friday, four militant Nigerian factions said they would accept in principle an amnesty offer from President Umaru Yar'Adua, raising hopes Africa's top oil producer would halt a battle with rebels.

Pipeline bombings, attacks on oil and gas installations and kidnapping of industry workers over the past three years have prevented Nigeria from pumping much above two-thirds of its installed oil output capacity of 3 million barrels per day (bpd).

Algerian Energy and Mines Minister Chakib Khelil said Monday oil demand was still weak due to the weakness of the U.S. and European economies and world oil stocks remained high.

Khelil said an increase in OPEC oil production was hard to envisage, despite rising crude prices.

Oil analysts say OPEC can help tighten the oil market significantly later this year if it continues to implement its promise to cut oil production by 4.2 million bpd from its September output levels.

Oil Rises Above $69 on Nigeria Attack

By: Reuters | 25 Jun 2009 | 10:11 AM ET
Oil rose above $69 a barrel on Thursday after Nigeria's main militant group shut down one of Royal Dutch Shell's pipeline junction points, heightening concerns about supplies from the region.
In the latest in a string of attacks in Nigeria, Africa's biggest oil producer, the Movement for the Emancipation of the Niger Delta (MEND), said it had sabotaged the Billie-Krakama pipeline in Rivers State, which supplies one of the country's main export terminals.

Attacks from MEND have forced foreign oil companies, including U.S. oil major Chevron [CVX 67.11 1.39 (+2.12%)] and Italy's Agip, to shut at least 133,000 barrels per day of oil production in the last month.

Shell said it had shut down one of its pipeline junction points on Thursday but declined to say whether any oil production had been affected.

Analysts said the effect on prices had been subdued with plenty of spare supply capacity available around the world, as the global recession has cut demand for oil.

"The Nigerian attacks have definitely been supportive, but the impact is less in the current economic environment as there's plenty of spare capacity in the oil industry right now," Andrey Kryuchenkov, an analyst at VTB Capital in London, said.

"When we were rallying towards $150 a barrel last summer a small sneeze in Nigeria would send the market rallying at least $2 a barrel. There's less of a geopolitical premium in prices now," Kryuchenkov added.

Falling demand for oil sent oil prices crashing from record highs close to $150 a barrel last July towards $30 a barrel at the turn of the year.

Since mid-April, however, prices have risen sharply on prospects for an economic recovery.

A Reuters poll of industry analysts showed oil prices are expected to average more than $70 a barrel in 2010, compared with the latest forecast average of $56.59 for this year.

Rising Inventories

On Wednesday, U.S. government data showed stockpiles of gasoline in the world's largest energy consumer rose 3.9 million barrels last week, exceeding analysts' predictions.

Stockpiles of distillates — such as diesel and heating oil — have risen to 10-year highs due to the recession. But prices took support from a large drop in stockpiles of crude oil, which declined by 3.8 million barrels last week.

The U.S. economy shrank slightly less in early 2009 than previously thought, the government reported on Thursday, though there was widespread weakness in activity and demand was soft. Gross domestic product dropped 5.5 percent in the first quarter, from 6.3 percent in the last quarter of 2008.

Separately, the Labor Department said the number of workers filing new claims for jobless benefits unexpectedly rose last week by 15,000 to a seasonally adjusted 627,000 — a measure of the strain still faced by hard-pressed consumers.

Oil pulled back slightly falling the jobless claims report, with the dollar strengthening as investors' appetite for risk was curbed.

A stronger dollar makes commodities priced in the greenback more expensive for holders of other currencies.

Why oil is on the rise again

Prices have doubled since February, but that's probably not the end of it. Asia's recovery is igniting demand.

NEW YORK (Fortune) -- Ask a group of oil analysts about the recent surge in crude costs and here's the consensus answer you'll get: Prices have run up too far, too fast and they aren't supported by the fundamentals.

Ask them about where prices will be two years from now, however, and the majority will offer this prediction: A lot higher.

"We're concerned about oil prices rising so rapidly in the near-term," says Hussein Allidina, head of commodities research at Morgan Stanley. "But the bet in the long-term is one way, and that's just up."

Oil shot past $70 a barrel last week, meaning the cost per barrel has doubled since hitting a low in mid-February. And the swiftness of that move has plenty of observers wondering if we're headed toward another period of even more dramatic price gains.

Among the oil insiders worried about such a scenario is Royal Dutch Shell CEO Jeroen van der Veer, a 38-year veteran of the energy giant, who is scheduled to retire June 30. "If the oil prices stay volatile I'm afraid there will be too much slowdown in investment," he said at an energy conference in Abu Dhabi in early June, according to Reuters, while reiterating that Shell would follow through on its spending plans for this year. "I think too low capacity means the next price spike is to come."

The last spike, of course, was a year ago at this time, when oil zoomed all the way up to $147 per barrel and Congress began holding hearings to discuss whether speculators were manipulating prices. Then a market correction that began in the middle of last summer was accelerated by the global financial crisis. Oil plunged to multi-year lows, with the price of benchmark West Texas Intermediate crude dropping under $35 in December and again in February.

To understand the odds of oil moving back above $100, it helps to first examine the reasons that the price has rebounded so strongly in recent weeks.

Much of the recent rally actually has nothing to do with the oil market's current supply-and-demand situation. The latest estimate from the International Energy Agency (IEA) projects that worldwide oil use will be almost 2.5 million barrels a day lower on average this year than in 2008. And despite the fact that OPEC has been cutting back on production since last September to boost prices, oil inventories around the world are still high compared to historical levels.

"Considering that supply seems ample and demand is weak, the fact that oil is going up looks kind of weird," says Adam Sieminski, chief energy economist at Deutsche Bank. "But those factors are being overwhelmed by a huge sigh of relief that we're not going to have the Great Depression. A lot of money is coming out of mattresses."

That inflow is lifting stocks and commodities alike. Research by Morgan Stanley found the correlation between crude oil prices and equities has recently been at a record high -- with both rising strongly on the hope that the economic cycle has already bottomed.

"Historically, equities have been a leading indicator of economic growth and commodities have been a coincident indicator," says Morgan Stanley's Allidina. "Right now you're seeing commodities and equities move up together as money comes back in at the same time."

Just as important, Morgan Stanley found that the inverse correlation between a weakening U.S. dollar and rising crude prices was also closing in on a record high. Because oil is priced in dollars, when the value of the dollar falls it makes oil cheaper in other currencies -- simultaneously boosting consumption outside the U.S. and motivating non-U.S. producers to raise prices to make up for the purchasing power they've lost in the currency conversion.

Concerns about the ballooning deficit in the U.S. have caused investors to begin fleeing the dollar. The U.S. dollar index, which measures the value of the greenback against six major world currencies, has dropped 9% since the beginning of March. As it falls, oil prices are rising. If it falls further, they'll rise higher.

But just how high oil prices go from here -- and how fast they get there -- will ultimately depend on the ability of producers to meet future demand. And any robust rebound in consumption is sure to put a strain on global supply.

The investment cutbacks warned about by Shell's Van der Veer only make that more likely. In its World Energy Outlook 2008, released last November, the IEA warned that production declines from existing supplies would keep the market tight and called for $26 trillion in new infrastructure spending worldwide over the next two decades. Right now, the opposite is happening. In May, the IEA said it expected a 21% drop in oil and gas investment budgets globally in 2009 compared to 2008, or nearly $100 billion less. A cautious OPEC has said that a lot of its member countries' new drilling projects remain on hold.

Meanwhile, there are signs that a demand recovery could be on the way in Asia. China's crude consumption averaged 7.6 million barrels per day in April, according to Allidina, the highest level on record, amid reports that the government was stockpiling commodities. Goldman Sachs was confident enough of a demand rebound to come out in early June with a price target of $85 a barrel for West Texas Intermediate crude by the end of 2009 and $95 by the end of 2010.

Deutsche Bank's Sieminski agrees that prices are going higher over time. "Our forecast has been that oil will be at $100 in 2015 and it could happen faster if the economy recovers," he says. Because oil is generally considered an "inelastic" commodity -- meaning it takes a big increase in price to produce a small change in demand -- the chances of a spike increase once supplies get tight.

"If you get close to the balance, prices can go haywire very quickly and there's very little that can be done about it," says Sieminski. "Something happens on the margin to put pressure on the market and instead of the price adjustment being gradual it's a step change. Last time gasoline had to go to $4 a gallon and crude had to go to $150 a barrel to rebalance things. And that's how we could get there again."

Let's hope we don't get there for a while. To top of page

Oil Rises Above $72 on Weaker Dollar, US Data

Reuters | 16 Jun 2009 | 10:40 AM ET
Oil rose $2 to above $72 a barrel on Tuesday as the dollar slid and U.S housing data showed a jump in new construction starts and permits.
"The housing data was quite good, but stock markets are not shooting away just yet," said trader Robert Montefusco at Sucden Financial. "The dollar is still the main crux of it."

The dollar fell broadly as higher European shares piqued appetite for currencies seen as higher risk, and lost more ground after the U.S. housing data.

A weaker dollar can strengthen commodity markets by improving the purchasing power of buyers using other currencies.

The Commerce Department said on Tuesday U.S. housing starts jumped 17.2 percent to a seasonally adjusted annual rate of 532,000 units, from April's revised 454,000 units, and new building permits rose 4 percent, the biggest advance since June last year.

Iran Priced In

Iran's top legislative body ruled out annulling a disputed presidential election that has prompted the biggest street demonstrations since the 1979 Islamic revolution, but said it was prepared for a partial recount.

The world's fifth-biggest oil exporter has seen three days of the largest and most violent anti-government protests in three decades, though no disruption to Iran's 2.1 million barrels-per-day exports have been felt.

"We've seen a downward spiral over the years in light of sanctions in Iran's ability to bring projects online...it's a slow trend that had pretty much been continuously priced in," said Samuel Ciszuk, analyst at IHS Global Insight in London.

Expectations of an economic recovery drove crude prices to a near eight-month high above $73 a barrel last week.

Traders will look out for weekly U.S. government inventory data on Wednesday, which is expected to show a 1.8-million barrel fall in crude oil stockpiles, a 600,000-barrel rise in gasoline stockpiles and 900,000-barrel rise in distillate stockpiles, based on a preliminary Reuters poll.

The American Petroleum Institute (API) will issue its report later in the day.

With oil rising almost $20 since the end of April, there were concerns that speculation in the market had pushed oil prices up too high, too fast.

OPEC Secretary-General Abdullah al-Badri said too quick a rise in oil prices could harm a global economic recovery, though a price of $80 a barrel would not stem growth.

The head of the International Monetary Fund, Dominique Strauss-Kahn, also sounded a cautious note, saying on Monday the worst of the global crisis was not yet over.

Oil Above $72 As Traders Eye Economic Recovery

Jun. 12, 2009
(AP) Oil prices hovered above $72 a barrel Friday in Asia near an 8-month high as investors eyed signs a global recession may be easing.

Benchmark crude for July delivery fell 31 cents to $72.37 a barrel by midday Singapore time in electronic trading on the New York Mercantile Exchange. On Thursday, it rose $1.35 to settle at $72.68, the highest since October.

An improving crude demand outlook helped bolster prices. On Thursday, the International Energy Agency in Paris said in its monthly survey that global oil demand would fall by 2.9 percent this year, better than its May forecast of a 3 percent annual fall.

It was the organization's first upward estimate of demand in 10 months.

"Oil prices are discounting positive economic growth by around the end of the third quarter," said Christoffer Molke-Leth, head of sales trading for Saxo Capital Markets in Singapore. "If that doesn't happen, prices at this level are overbought."

Prices have more than doubled since March as investor optimism grew that the worst of a severe U.S. recession was over.

The Labor Department on Thursday reported that the number of newly laid-off Americans filing for jobless benefits fell last week by 24,000 to 601,000 _ better than economists had forecast.

Meanwhile, the Commerce Department said retail sales rose 0.5 percent in May, interrupting two months of decreases and marking the largest gain since January.

"I think we're going for a test of $75," Molke-Leth said. "Every time you see a little pull back you have funds ready to step in."

Investors have also bought crude as a hedge against a weakening U.S. dollar and the possibility of inflation down the road. The euro was steady at $1.4102 on Friday.

"Fear of inflation is supporting the whole commodity complex, particularly oil," Molke-Leth said. "The record fiscal and monetary stimulus will have inflationary implications."

In other Nymex trading, gasoline for July delivery fell 0.64 cent to $2.06 a gallon and heating oil dropped 0.63 cent to $1.85. Natural gas for July delivery slid 3.7 cents to $3.90 per 1,000 cubic feet.

In London, Brent prices fell 28 cents to $71.51 a barrel on the ICE Futures exchange.

Oil Prices Rise Above $69 as Dollar Eases

Reuters | 09 Jun 2009 | 08:50 AM ET

Oil snapped a two-day slide on Tuesday, climbing above $69 as the U.S. dollar retreated.

Oil prices have more than doubled since February, rising with equities and helped by currency movements as a weaker dollar makes dollar-denominated commodities cheaper.

The S&P 500 index has risen by 39 percent from a one-year low on March 9, and increased appetite for risk has diminished demand for the dollar as a relatively safe haven.

"The currency market has been driving the oil market since the middle of May. Traders are looking more at the dollar than at equity markets now," said Tetsu Emori, fund manager at Tokyo-based Astmax.

Rising expectations of global economic recovery, which could spur fuel demand, have boosted buying across a range of markets, and oil price forecasters have become more bullish, predicting swollen fuel inventories will drop in the coming months.

Societe Generale on Tuesday raised its year-end crude oil price forecasts for 2009 by $8.50 to $65 a barrel in the third quarter and lifted its fourth-quarter forecast by $11.50 to $72.50, citing higher expected U.S. five-year inflation in a research note.

"Historically the relationship between oil and inflation expectations is much stronger than oil and the dollar," said Mike Wittner, global head of oil research at Societe Generale. "Oil prices are being driven lately more by non-fundamentals than fundamentals, and this (five-year inflationary) non-fundamental factor looks like it's going to be with us for a while."

Dollar Steady

The dollar paused from its latest gains while investors questioned whether there was a strong enough chance that a likely U.S. interest rate rise later this year would justify pushing the currency higher.

Traders said economic indicators and upcoming auctions for U.S. debt could underscore this shift in market sentiment.

"All eyes have been on stock markets and currency markets lately," said Tony Machacek, a broker at Bache Commodities. "The auctions today could have a significant shift in the trend of the dollar, and I wouldn't be surprised by a spill-over into oil values."

Nobuo Tanaka, executive director of the International Energy Agency, told Reuters on Monday the agency expects oil stocks in developed OECD economies to fall to 57 days by year-end from 63 days now if OPEC keeps output at current levels and demand recovers.

Later on Tuesday, the market could take direction from weekly U.S. inventory data from industry group the American Petroleum Institute, which is scheduled for release at 4:30 pm New York time.

It will be followed by U.S. Energy Information Administration data on Wednesday.

Analysts polled by Reuters said they expected crude stocks to have fallen by 400,000 barrels last week, while distillate and gasoline stockpiles could have risen by 1.2 and 1.3 million barrels respectively.

Last week, U.S. crude oil stockpiles rose by a more-than-expected 2.9 million barrels.

Oil Settles Just Below $69 on Recovery Hopes

Reuters | 04 Jun 2009 | 03:34 PM ET
Oil prices hit a seven-month high Thursday after U.S. data showed a drop in jobless claims, boosting expectations of an economic recovery that could revive ailing energy demand.

U.S. light, sweet crude [US@CL.1 68.69 2.57 (+3.89%)] for July delivery rose $2.69 to settle at $68.81 a barrel after peaking at $69.60 earlier in the day — the highest level since early November. London Brent crude [GB@IB.1 68.55 2.67 (+4.05%)] gained $2.83 to $68.71.

"There is a hell of a lot of momentum in these markets right now," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn.

U.S. investment bank Goldman Sachs said a potential economic rebound alongside production cuts by the OPEC cartel could propel crude to $85 a barrel by the end of the year and to $95 a barrel by the end of 2010.

Oil's gains Thursday came after a U.S. report showing the number of U.S. workers filing new claims for jobless benefits fell for a third straight week, indicating some loss of force in the pace of the job market's deterioration.

The data contributed to a rally on Wall Street of about 1 percent.

"As has been the case lately, constructive economic data has been used as an indicator that the economy will improve and that oil demand will follow," said Peter Beutel, president of trading consultants Cameron Hanover in New Canaan, Conn.

Some analysts cautioned, however, that a staggering rebound in oil prices from lows near $30 a barrel this winter might be overdone given continued soft demand and high stockpiles. Oil had closed more than $2 a barrel lower Wednesday, after the U.S. Energy Information Administration reported U.S. crude inventories rose 2.9 million barrels.

Inventories of crude oil have swelled since the start of the economic crisis last autumn as global energy demand dipped for the first time in a quarter century. Aside from brimming onshore storage levels, some 100 million barrels of crude oil have been stowed away on vessels at sea, French oil major Total's head of strategy and planning told the Reuters Global Energy Summit Thursday.

Experts have said high oil inventories at sea could quickly flood the market once profits from holding onto the crude fall below the cost of storage. Concerns over weak demand and rising inventories have led producer group OPEC to agree to 4.2 million barrels per day worth of crude oil output cuts since September.

Saudi Oil Minister Ali al-Naimi has said OPEC would wait until crude inventories fall to around 53 days of forward cover — nearly 10 days below current levels — before considering raising output again.

Oil Rises Toward $68 on Higher Stocks, Lower Dollar

By: Reuters | 01 Jun 2009 | 09:21 AM ET
Oil rose more than 2 percent to a seven-month high on Monday, extending its biggest monthly gain in a decade due to rallying stock markets and sustained expectations for a global economic recovery.
U.S. stocks rose, following gains in Europe and Asia driven by data showing China's manufacturing continued to expand moderately in May. The dollar weakened, boosting investor demand for oil and commodities.

The dollar weakened, boosting investor demand for oil and commodities.

"It's the dollar and equities," said Christopher Bellew, a broker at Bache Commodities. "It's maybe not so surprising if there is a chance of seeing some economic recovery and increased demand for oil."

U.S. light sweet crude [US@CL.1 67.79 1.48 (+2.23%)] was higher, having climbed as high as $68.29.

London Brent crude [GB@IB.1 67.1 1.58 (+2.41%)] rose.

The market is still down sharply from a record high over $147 reached last year.

China's manufacturing sector continued to expand moderately in May as new export orders improved, two surveys showed on Monday, adding to tentative signs the world's third-largest economy was stabilizing.

Oil rallied by 30 percent in May to its highest since early last November, giving OPEC enough hope about the outlook that it agreed to maintain production at last week's meeting.

Inventories

At the same time, OPEC is unlikely to move quickly to curtail the rally.

At the weekend Saudi Oil Minister Ali al-Naimi said OPEC would wait until crude inventories fall to around 53 days of forward cover before considering raising output, nearly 10 days below current levels.

Despite oil's rally, many analysts have said the underlying fundamentals remain bearish.

This is now starting to change, with U.S. crude stockpiles falling last week and gasoline inventories dropping for the fifth week.

Reflecting increased expectations that prices will rise, speculators have expanded their net length in NYMEX crude contracts to over 40,000 lots, the highest since February.

Oil as well as base metals investors are now factoring in economic revival and "probably a fairly decent 'V'," said Commonwealth Bank of Australia commodity strategist David Moore.

"There is a risk that if economic data does not continue to support this view of the world that markets become disappointed with the pace of economic recovery, leading to price setbacks," he said.

Also, there is a risk of tempered demand growth as higher prices are passed on in some of the world's fastest-growing oil markets.

Beijing from Monday raised retail diesel and gasoline prices by 6-7 percent, the second and biggest rise this year.