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AP Worlstream: Oil prices rebound as Nigerian unrest renews concerns of supply disruption

By: TANALEE SMITH, AP Worldstream
Published: Oct 05, 2006

Oil prices rallied Thursday after an attack against Nigerian oil workers and facilities renewed concerns of supply disruptions.

Prices hit a seven-month low this week and continued to fall Wednesday after U.S. government data showed rising inventories of crude, gasoline and heating oil. But the news of violence in Nigeria’s oil-rich southeastern delta brought buyers back into the market, and some worried that OPEC would make cuts to control prices.

Light, sweet crude for November delivery rose 32 cents to US$59.73 a barrel in Thursday midmorning Asian electronic trading on the New York Mercantile Exchange.

At London’s ICE Futures exchange, November Brent crude was up 17 cents to US$59.39 a barrel.

Analysts said the oil market may have already reached a bottom in the high US$50s and the Nigeria violence was just another catalyst to readjust prices.

“These events remind the market that the conditions of tight refinery capacity, tight OPEC output and geopolitical concerns remain,” said Victor Shum, an analyst with Purvin & Gertz in Singapore. “And the market may have hit a bottom as we head into the upcoming northern hemisphere winter season, when prices are likely to strengthen.”

In Nigeria, a major militant group claimed Wednesday they killed nine soldiers and captured two government gunboats at a pumping station belonging to a Royal Dutch Shell PLC subsidiary. The army gave no casualty figures and it was not possible to confirm the militants’ claim.

In a separate incident in Nigeria, a convoy carrying soldiers and supplies for Agip, a subsidiary of Italian oil company Eni SpA, was attacked, Brig. Gen. Alfred Ilogho said. Eni spokesman Gianni Di Giovanni said late Wednesday the company didn’t have information about the attack.

Nigeria’s light, sweet crude oil is particularly desirable for the production of transportation fuels and any loss of output has the potential to spook the market. A series of attacks and kidnappings in Africa’s largest oil producer have cut production by more than a quarter so far this year. The two attacks followed the release earlier Wednesday of a group of Nigerians taken hostage Monday. Several foreigners kidnapped Tuesday night remained in captivity.

An unsourced Financial Times report on Thursday said the Organization of Petroleum Exporting Countries has informally agreed to cut output 4 percent in coming weeks to defend the US$50-55 per barrel price range.

Saudi Arabia’s ambassador to the U.S. said Wednesday that he did not expect OPEC to hold an emergency meeting to discuss prices ahead of its scheduled Dec. 14 meeting, despite the steep decline in prices recently.

Prince Turki said Saudi Arabia’s intent was to “bring down prices to reasonable levels.”

While some OPEC nations, including Nigeria and Venezuela, have already voluntarily cut output, Purvin & Gertz’s Shum said the body would likely adopt a “wait and see” attitude until their December meeting.

“They have some time to see if the market bottoms out and may not need to formally do anything,” Shum said.

Soothing the market was the weekly report from the U.S. Energy Department saying that U.S. inventories of crude oil rose by 3.3 million barrels last week to 328.1 million barrels, or 6.7 percent above year-ago levels. Gasoline inventories rose by 1.2 million barrels to 215.1 million barrels, or 9.6 percent more than last year.

In other Nymex trading Thursday, heating oil futures rose a penny to US$1.6870 a gallon while gasoline futures gained 1.27 cents to US$1.5105 a gallon. Natural gas futures rose 17 cents to US$6.165 per 1,000 cubic feet.

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