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Financial Times: Energy market vulnerability highlighted by volatile week

EXTRACT: There was better news from Nigeria as Shell repaired a pipeline allowing 180,000 barrels a day of output to be restored, but this was tempered by more kidnappings by militants.

THE ARTICLE

By Chris Flood
Published: August 12 2006 03:00 | Last updated: August 12 2006 03:00

Energy markets experienced an extraordinary week after a pipeline leak led to the closure of the largest oilfield in North America, pushing Brent to a record $78.64 a barrel on Monday.

Investors had scarcely digested the implications of the loss of production from Prudhoe Bay in Alaska before the market was stunned by Thursday’s news that UK police had foiled a terrorist plot to blow up transatlantic passenger aircraft in mid-flight. Oil prices fell sharply on Thursday in a knee-jerk reaction, reflecting fears that demand for air travel could be hit, but they rebounded yesterday.

ICE September Brent rose 42 cents to $75.70 a barrel yesterday, down 0.6 per cent over the week. Nymex September West Texas Intermediate increased 45 cents to $74.45 a barrel yesterday, down 0.4 per cent this week.

BP has managed to restore 155,000 barrels of Prudhoe’s 400,000 barrels of daily output while ConocoPhillips has already declared force majeure on its oil shipments from Alaska.

With any excess in global production capacity already severely limited, Prudhoe Bay underlined the energy markets’ vulnerability to a major supply shock.

There was better news from Nigeria as Shell repaired a pipeline allowing 180,000 barrels a day of output to be restored, but this was tempered by more kidnappings by militants.

In the US, gasoline demand is running at record levels close to 9.7m barrels a day. Record pump prices have done little to dent demand growth which rose to 1.8 per cent year-on-year.

Nymex September unleaded gasoline rose7 cents to $2.0600 a gallon yesterday, down 7.7 per cent this week.

Nickel hit a record high at $27,300 yesterday, supported by ongoing strike action at Inco’s Voisey Bay mine in Canada, gaining 3.9 per cent this week.

Copper fell 3.8 per cent to $7,560 a tonne this week after talks restarted yesterday between striking miners and management at Escondida, the world’s largest copper mine in Chile.

The US Department of Agriculture estimated this year’s corn crop at 10.976bn bushels, about 200m bushels above expectations. This provided a major surprise for those hedge funds that have taken long positions in corn in expectation of growing demand for ethanol. CBOT September corn futures fell 11¼ cents to $227½ a bushel yesterday.

Gold fell 1.2 per cent over the week to $638.15 a troy ounce while other precious metals were rangebound, with silver at $12.20 a troy ounce.

Copyright The Financial Times Limited 2006

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