Oil Rises to Record on U.K. Pipeline Shutdown, Nigeria Attack

Oil Rises to Record on U.K. Pipeline Shutdown, Nigeria Attack

April 28 (Bloomberg) -- Crude oil rose to a record, trading near $120 a barrel in New York, after BP Plc shut a North Sea pipeline and gunmen attacked police guarding Nigeria's largest oil and gas terminal.

BP closed the Forties Pipeline System, carrying 40 percent of the U.K.'s oil production, after a strike at the Grangemouth refinery cut power supplies. Five police were killed in yesterday's attack in the Niger Delta, where output has dropped by 50 percent since April 25, adding to concern about supplies before the Northern Hemisphere summer driving season.

``The bulls are still in control so it's no surprise to be near $120 on these supply concerns,'' said Victor Shum, senior principal at Purvin & Gertz Inc. in Singapore. ``Nigeria is back on top of traders' minds. The disruptions are real and this is high-quality crude needed by the U.S. refineries for gasoline production in the summer.''

Crude oil for June delivery rose as much as $1.41, or 1.2 percent, to $119.93 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since the futures began trading in 1983. It was at $119.44 at 3:05 p.m. in Singapore. Prices have surged 82 percent in the past year.

The contract jumped 2.1 percent to $118.52 a barrel April 25 when the refinery strike and pipeline closure were announced.

New York oil futures are 82 percent higher than a year ago. Investors have purchased contracts as a hedge against the dollar as it has fallen to a record low against the euro and as an alternative to flagging equities markets. The benchmark U.S. S&P 500 Index has dropped 9.8 percent since the start of the year.

`Substantial Production'

``The production affected at the moment is pretty substantial,'' said David Moore, the commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. ``It all counts nowadays. The price would suggest the market is very tight.''

Oil for delivery in June is selling at a premium of $1.04 a barrel to July supplies. The price difference becomes more pronounced for later month contracts as June's premium to the December future has jumped to $4.80 a barrel.

Brent crude for June settlement rose as much as $1.16, or 1 percent, to $117.50 a barrel London's ICE Futures Europe exchange and was trading at $117.36 a barrel at 3:05 p.m. in Singapore. It reached a record $117.56 on April 25.

Refinery production at Grangemouth will resume on April 29 at 7 a.m. local time. Units crucial to restart flows on the Forties pipeline will have priority, Richard Longden, spokesman for operator Ineos Group Holdings Plc, said yesterday.

Low-Sulfur Grades

Oil grades from the North Sea and Nigeria, Africa's biggest producer, are low in sulfur and favored by refiners. Nigeria is losing about 50 percent of its output after staff at Exxon Mobil Corp.'s operations went on strike April 24 and militants attacked a Royal Dutch Shell Plc pipeline later the same day.

``Nigerian crude is quite good quality and the U.S. probably imports about 10 percent to 15 percent from them,'' said Tetsu Emori, a fund manager at Astmax Ltd. in Tokyo. ``It's affecting the supply and the quality'' for the refiners.

Nigeria pumped 1.96 million barrels a day in March, according to Bloomberg estimates. Recent attacks on Shell-run pipelines, including the latest one, are cutting oil flows by about 140,000 barrels a day, the country's oil minister H. Odein Ajumogobia said April 25. The Exxon Mobil strike is halting about 765,000 barrels a day, according to union estimates.

The loss of production in the North Sea and Nigeria follows reports of output declines in Russia and Mexico, two of the biggest suppliers that aren't members of the Organization of Petroleum Exporting Countries.

`New Supply Problems'

``On top of everything in the U.K. and everything in Nigeria, it seems like everyday we're having new supply problems,'' Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore, said in an interview with Bloomberg Television. ``It's political, it's supply. Everyday there's something pushing prices higher.''

Hedge fund managers and other large speculators increased bets on rising oil prices for a third time in the week ended April 22, according to data from U.S. Commodity Futures Trading Commission.

Speculative long positions, or bets prices will rise, outnumbered short positions by 70,562 contracts, a 6 percent gain, the Washington-based commission said in its Commitments of Traders report. This is the highest since the week ended March 21.

Oil prices are likely to fall to ``more realistic levels'' once the Forties pipeline has re-opened, said Ben Barber, a broker at Bell Commodities Ltd. in Melbourne. U.S. stockpiles and the dollar are rising and there is a risk prices will decline this week if the Federal Reserve signals an end to recent interest rate cuts.

``Oil is quite susceptible,'' he said.

The Federal Reserve will probably cut its target lending rate by a quarter-point to 2 percent on April 30, according to futures traded on the Chicago Board of Trade, the smallest reduction in four months.

BLOOMBERG