UPDATE 1-Oil hovers near $75, Nigeria outage feared lasting
Fri Jul 28, 2006 2:35 AM ET
(Updates prices para 2, adds possible Rice trip to Mideast para 8, quote para 12)
By Jonathan Leff
SINGAPORE, July 28 (Reuters) - Oil hovered near $75 a barrel on Friday, eking out a third day of gains as a major Nigerian export outage threatened to drag into next year and unrelenting violence in the Middle East kept traders on edge.
U.S. light sweet, crude <CLc1> rose 10 cents to $74.64 a barrel, adding to Thursday's 60-cent gain, while London Brent crude <LCOc1> climbed 18 cents to $75.19 a barrel, maintaining an unusual premium as Europe braced for tighter conditions.
Royal Dutch Shell <RDSa.L>, Nigeria's biggest foreign operator, does not expect a "significant" amount of its production shut in by attacks to resume before year-end, CEO Jeroen van der Veer said.
Shell closed 455,000 barrels per day (bpd) of output in February due to militant violence and another 180,000 bpd at the weekend due to a pipeline leak, although the latter may restart more quickly as repairs are completed, he said on Wednesday.
Production in the world's eighth-biggest exporter has been reduced by a quarter, mostly by militant attacks, affecting nearly 1 percent of global supply, said Tobin Gorey, commodities analyst at the Commonwealth Bank of Australia.
"While that doesn't sound like much, it's important because supply is tight and because the crude grades from Nigeria are prized," he said in a note. "Now there seems no near-term prospect of the supply coming back to the market."
Shell declared force majeure on cargoes of its Nigerian Bonny Light crude on Wednesday, while an attack on an Agip flow station made a significant cut in the Italian firm's output.
CONFLICT RAGES
Adding to the market's psychological strain, Israel called up 15,000 reserve soldiers as the 17-day-old conflict with Hizbollah showed few signs of easing. It kept up bombardment of Lebanon but ruled out a full-scale invasion of its northern neighbour.
Diplomatic divisions appeared to widen as U.S. President George W. Bush distanced himself from calls for an immediate ceasefire. U.S. officials said Secretary of State Condoleezza Rice would return to the region this week if needed.
At a meeting in Kuala Lumpur on Friday, Asian countries and security partners including the United States and Russia will focus on the Middle East violence, which traders fear may endanger exports from a region that pumps a third of the world's crude.
Prices also drew support from a deeper than expected drop in U.S. gasoline inventories due to refinery outages and strong demand, which is up 1.8 percent from a year ago despite $3 a gallon pump prices in the world's top oil user.
"The message from the latest U.S. weekly data is again about the implications of a buoyant economy, with strong income effects still overwhelming the impact of higher retail prices," Barclays Capital analysts said in a report.
In third-largest consumer Japan, where oil demand has been unusually weak this summer as colder and wetter weather deterred holiday drivers, refiners were set to crank up runs in August after gasoline stocks fell to their lowest in almost two years.
Number-two oil user China posted surprisingly strong double-digit demand growth in the second quarter, but slowing imports of fuel oil and a trickle of diesel exports may signal more modest increases in coming months, traders say. [O/CNTRADE]
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