Oil Gains on Nigerian Output Disruption, IMF's Higher Forecast

18 Jul 2008 • by Natalie Aster

By Nesa Subrahmaniyan and Christian Schmollinger

July 18 (Bloomberg) -- Crude oil rose from the lowest in more than a month in New York, after production was disrupted in Nigeria and the International Monetary Fund raised its forecast for global economic growth this year.

Eni SpA, Italy's largest oil company, said 47,000 barrels a day of Nigerian production had been suspended after an "unforeseen drop in pressure" on pipelines leading to the Brass export terminal. The world economy will expand 4.1 percent this year, faster than the 3.7 percent pace projected in April, the IMF said yesterday.

"The market is sensitive to any real or potential supply disruptions," said Toby Hassall, an analyst at Commodity Warrants Australia in Sydney. "At current price levels, it's seen as a good opportunity to buy back as supply bottlenecks are still a concern."

Crude oil for August delivery rose as much as $1.51, or 1.2 percent, to $130.80 a barrel in electronic trading on the New York Mercantile Exchange. It traded at $130.77 at 2:54 p.m. Singapore time. Yesterday, oil fell $5.31, or 4 percent, to settle at $129.29 a barrel, the lowest close since June 5. The 12-month average for New York futures rose above $100 a barrel today. Futures are up 74 percent from a year ago.

Oil also gained as U.S. stock-index futures retreated after Google Inc., Merrill Lynch & Co. and Microsoft Corp. missed analysts' profit estimates and fell more than 6 percent, prompting investors to buy commodities.

Oil is down 10 percent this week, the biggest weekly decline since April 29, 2005.

`Upside Risks'

"There's potential for a downside follow-through in prices, but the market will eventually find a bottom, maybe at $120," Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo, said in a Bloomberg Television interview. "There are still upside risks, and if anything happens to supply, $170 to $190 a barrel is possible."

Oil at $190 a barrel would mean motorists would be spending the same amount on gasoline as during the 1980-1981 oil crisis, the last time there was a large and sustained loss in oil demand, Nunan said in an e-mail.

Standard & Poor's 500 Index futures expiring in September dropped 8.30 points, or 0.7 percent, to 1,245.10 as of 8:50 a.m. in Sydney. Dow Jones Industrial Average futures lost 64 points, or 0.6 percent, to 11,337.

Brent crude oil for September settlement gained as much as $1.38, or 1.1 percent, to $132.45 a barrel on London's ICE Futures Europe exchange. It was at $132.40 a barrel at 2:53 p.m. Singapore time.

Yesterday, it declined $4.74, or 3.5 percent, to settle at $131.07 a barrel, the lowest close since June 11. Prices climbed to a record $147.50 on July 11.

Goldman's Target

Goldman Sachs Group Inc., Wall Street's most profitable bank, said it's maintaining its $149 a barrel year-end price target for crude oil as inventories remain "extremely low" and the market is vulnerable to supply shocks.

Prices may fall in the "near term" because of rising inventories in developed nations as imports by U.S. and Japan increase, Goldman analysts Jeffrey Currie and Giovanni Serio said in a report yesterday.

"I have been a secular bull for quite a while," Mitsubishi's Nunan said. "We've got to go below $120 for a bottom and if that happens, a lot of consumers may come in to buy."

The current oil crisis has been 30 years in the making, said Nunan by e-mail. He noted that capacity from the Organization of Petroleum Exporting Countries will total 35.95 million barrels a day in the latest report from the International Energy Agency. This is equal to the previous peak in 1978.

vOPEC Capacity

"It's essentially taken 30 years to get back to where we were," he said in the e-mail. "New OPEC spare capacity going forward will not be anywhere near as cheap to develop or maintain as it was before."

Crude oil may fall next week as U.S. supplies increase and slowing economic growth curbs fuel use in the world's biggest energy-consuming country.

Ten of 22 analysts surveyed by Bloomberg News, or 45 percent, said prices will fall through July 25. Seven of the respondents, or 32 percent, said oil will rise and five forecast little change. Last week 63 percent said futures would increase.

Source: Bloomberg.com