Oil Rises to Record Above $125 as Nigeria Cuts Curb U.S. Supply

Oil Rises to Record Above $125 as Nigeria Cuts Curb U.S. Supply

May 9 (Bloomberg) -- Oil rose to a record above $125 and was set for the biggest weekly gain in more than a year on speculation reduced exports from Nigeria will curb U.S. supplies during the peak summer driving season

Nigeria production, which fell to the lowest level in a decade in April, has been cut a further this month by rebel assaults on Royal Dutch Shell Plc pipelines. OPEC said yesterday it doesn't need to increase supplies, even as its president warned prices may reach $200 a barrel.

``In the last couple of weeks attacks in Nigeria have been getting worse,'' said Andy Sommer, an analyst with HSH Nordbank in Hamburg. ``Also, the view that oil can go to $200, even though everyone knows it's not the base-case scenario, is bringing in investor flows.''

Crude oil for June delivery climbed as much as $2.29, or 1.9 percent, to $125.98 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $125.50 at 12:39 a.m. London time. Oil has risen 7.4 percent this week, the biggest weekly gain since March 23, 2007. Prices have doubled in the last year.

Brent crude oil for June settlement jumped as much as $2.84, or 2.3 percent, to a record $125.68 a barrel on London's ICE Futures Europe exchange. It was at $124.94 at 12:39 a.m. London time.

Gasoil futures, the benchmark for diesel fuel, also rose to a record $1,187 a metric ton in London, gaining 2.9 percent.

Shell's Nigerian output, cut by 164,000 barrels a day, may take as long as two weeks to return, a government official said yesterday. Nigerian production was 1.88 million barrels a day in April, down from 2.04 million in March, according to Bloomberg estimates.

Sweet Crude

Nigerian oil is prized by refiners for the quantities of gasoline and other motor fuels so-called its sweet crude yields. The African country was the U.S.'s sixth-largest supplier in February, according to the American Petroleum Institute.

Oil's records are less due to ``fundamental changes'' than ``the increasing proportion of investor demand driving prices higher,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. ``I think we'll achieve a price of $150 in the coming six months.''

Bets by hedge funds and other speculative investors that prices will rise are 24 percent higher than a year ago, at 241,402 contracts, according to U.S. Commodity Futures Trading Commission data released May 2.

The Organization of Petroleum Exporting Countries said in a statement yesterday there's no need to raise output as ``the considerable depreciation in the U.S. dollar'' rather than limited supply is behind record prices. OPEC President Chakib Khelil said the weaker dollar may drive prices to $200 a barrel.

Dollar Decline

The dollar has fallen 5.6 percent against the euro this year, making commodities more attractive for buyers in foreign currencies and attracting investors who see crude as a hedge against inflation.

OPEC will probably meet before its next scheduled conference in September, Shokri Ghanem, chairman of Libya's National Oil Corp., said today.

U.S. distillate stockpiles, which includes heating oil and diesel, declined 107,000 barrels to 105.7 million, the Energy Department reported on May 7. Refineries in the U.S. operated at 85 percent last week, down from 89 percent the year before, the data showed. U.S. crude supplies rose 5.65 million barrels to 325.6 million barrels last week, amid increased imports.

BLOOMBERG