Disappointment sends oil higher

June 23, 2008 1:18:24 PM PDT
Oil prices rose Monday on disappointment over Saudi Arabia's modest production increase and concerns that output from Nigeria will decline. Retail gas prices, meanwhile, inched lower overnight, but appear unlikely to change much as long as oil prices stay in a trading range. Saudi Arabia said Sunday at a meeting of oil producing and consuming nations that it would turn out more crude oil this year if the market needs it. The kingdom said it would add 200,000 barrels per day in July to a 300,000 barrel per day production increase it first announced in May, raising total daily output to 9.7 million barrels.

But that pledge at the meeting held in the Saudi city of Jeddah fell far short of U.S. hopes for a larger increase. The United States and other nations argue that oil production has not kept up with increasing demand, especially from China, India and the Middle East. Saudi Arabia and other OPEC countries say there is no shortage of oil and instead blame financial speculation and the falling U.S. dollar.

"The Jeddah meeting became a non-event," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos. "There was no surprise."

Light, sweet crude for August delivery rose $1.38 to settle at $136.74 a barrel on the New York Mercantile Exchange.

Saudi Arabia did say it would work to boost its long-term production capacity.

"Obviously, the Saudis are concerned, and that could be a bearish factor," said Andrew Lebow, senior vice president at MF Global LLC in New York.

But any longer-term production increases are years away, Rafield said.

"The oil summit really has not done much to temper oil pricing," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "It was a modest output increase and hardly really compensates for the disruption out of Nigeria."

Concerns about Nigerian production also boosted prices Monday. Royal Dutch Shell PLC said it cannot meet contractual obligations to export oil from a Nigerian oil field following a militant attack Thursday, and news reports say Chevron Corp. has been forced to shut down a Nigerian oil facility following a militant attack. News reports of a strike against Chevron by Nigerian workers also contributed to buying Monday.

Those production outages appeared to overshadow Sunday's ceasefire declaration by the Movement for the Emancipation of the Niger Delta, or MEND, the main militant group in Africa's largest oil producing nation. Attacks by MEND have sliced about one quarter from Nigeria's normal oil daily oil output, helping buoy crude prices in international markets.

Investors are not convinced that lost Nigerian oil production will resume anytime soon, analysts say.

Limiting oil's gains Monday was the dollar, which rose against the euro. When the dollar gains ground, investors who bought commodities such as oil as a hedge against inflation tend to sell. Also, a stronger greenback makes oil more expensive to overseas investors. Many analysts believe the dollar's protracted decline has been one of the main reasons oil has nearly doubled in value over the past year.

But Democratic members of Congress said Monday they intend to tighten restrictions on pension funds, investment banks and other large investors that they blame for driving up fuel prices.

At the pump, meanwhile, the average national price of a gallon of regular gas slipped a tenth of a cent overnight to $4.072, according to AAA and the Oil Price Information Service. Prices have changed little since reaching a record of $4.08 one week ago.

Analysts think gas prices are unlikely to change much as long as oil prices remain stuck in their recent trading range between roughly $130 and $140 a barrel. Oil futures are unlikely to break out of that range without major news concerning supply and demand, or the dollar, analysts said.

"There's a general uncertainty," Lebow said. "There are forces on both sides," aiming to push prices higher and lower.

In other Nymex trading Monday, July gasoline futures rose 1.59 cents to settle at $3.4551 a gallon, and July heating oil futures rose 2.58 cents to settle at $3.7975. July natural gas futures rose 20.9 cents to settle at $13.203 per 1,000 cubic feet.

In London, August Brent crude futures rose $1.05 to settle at $135.91on the ICE Futures Exchange.


Load Comments