Oil Rises to Six-Month High on Nigeria Threats, Refinery Fire
By Mark Shenk
May 18 (Bloomberg) -- Crude oil rose to the highest close in six months after Nigerian militants threatened to block waterways used for energy exports and an explosion and fire at a Sunoco Inc. refinery affected operations.
The Movement for the Emancipation of the Niger Delta said that ships moving through the southern part of the country would be traveling at their own risk. Sunoco, the largest refiner in the Northeast, said the incident at the Marcus Hook plant, on the border of Pennsylvania and Delaware, took place yesterday.
“The situation in Nigeria is becoming increasingly unsettled,” said John Kilduff, senior vice president of energy at MF Global in New York. “The problems at the Sunoco refinery, which is a major supplier of gasoline to New York Harbor, are also giving the market a boost.”
Crude oil for June delivery rose $2.69, or 4.8 percent, to $59.03 a barrel at 2:43 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 11. Futures are up 32 percent this year.
The June crude contract expires tomorrow. The more-actively traded July contract increased $2.59, or 4.5 percent, to end the session $59.59 a barrel.
Gasoline for June delivery gained 7.75 cents, or 4.6 percent, to $1.7581 a gallon in New York, the highest settlement since Oct. 15.
Energy futures also climbed after U.S. equities increased on better-than-forecast earnings by Lowe’s Cos. and analysts recommended Bank of America Corp. The Standard & Poor’s 500 Index rose 2.5 percent to 905.18. The Dow Jones Industrial Average increased 2.5 percent to 8,471.98
Nigerian Fighting
Fighting in Nigeria has escalated since May 13 when militants said they responded to an army offensive by attacking military positions and hijacking a tanker.
MEND claimed responsibility yesterday for rupturing two pipelines supplying oil and natural gas from a Chevron Corp. facility to domestic refineries and power stations. The rebel group has threatened to blockade waterways in the southern region used for oil and gas exports.
Nigeria produces low-sulfur, or sweet, oil, prized by U.S. refiners because of the proportion of high-value gasoline and diesel it yields.
Angola, Africa’s second-biggest oil producer after Nigeria, will cut daily shipments by 6.8 percent in July. BP Plc, Total SA, Chevron Corp., Exxon Mobil Corp. and other companies are scheduled to load an average of 1.7 million barrels a day in July, compared with June’s 1.83 million, according to loading programs released through today.
No Injuries
There were no injuries at Marcus Hook and all personnel have been accounted for, Thomas Golembeski, a company spokesman, said in an e-mail. The refinery can process 175,000 barrels of oil a day, according to data compiled by Bloomberg.
Sunoco will be “optimizing operations at Philadelphia and Eagle Point” refineries to meet customer demand, Golembeski said. The Philadelphia refinery has a capacity of 330,000 barrels a day and the Eagle Point plant in New Jersey can process 150,000 barrels of oil a day.
The crude-oil market often follows gasoline during the second quarter as U.S. refineries prepare for the summer driving season. U.S. gasoline demand peaks between the Memorial Day holiday in late May and Labor Day in early September.
U.S. crude-oil supplies fell 4.63 million barrels to 370.6 million in the week ended May 8, the first drop since February, the Energy Department reported last week. Stockpiles in the week ended May 1 were the highest since 1990.
Bad Fundamentals
“The fundamentals for oil couldn’t be worse,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “With any rallies for the next eight weeks, gasoline is going to lead the rally because you can somehow put together a bullish picture for supply and demand.”
Total U.S. daily fuel demand averaged 18.2 million barrels in the four weeks ended May 8, down 7.9 percent from a year earlier, according to the Energy Department. Gasoline demand averaged 9 million barrels in the same period, down 1.2 percent from a year earlier.
“The lift in equities is giving the oil market a boost,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “There’s no fundamental reason for oil to be at this level. Inventories are high, demand is lousy and it appears that OPEC compliance is slipping.”
OPEC Quotas
The Organization of Petroleum Exporting Countries should adhere closely to agreed production quotas to stabilize oil markets, OPEC President and Angolan Oil Minister Jose Maria Botelho de Vasconcelos, said in a statement today. The group, which meets next on May 28 in Vienna, agreed last year to three production cuts as the global recession reduced energy demand.
Brent crude for July settlement rose $2.49, or 4.4 percent, to end the session at $58.47 a barrel on London’s ICE Futures Europe exchange. It was the highest settlement since Nov. 10.
Crude oil volume in electronic trading on the Nymex was 354,544 contracts as of 3:19 p.m. in New York. Volume totaled 498,399 contracts on May 15, 3.6 percent lower than the average over the past three months. Open interest was 1.14 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.