Crude Climbs With Focus on OPEC

March 9, 2008, WSJ

By Hyun Young Lee

OTTAWA – Crude-oil futures jumped to a two-month high as a militant attack on a Nigerian oil pipeline sharpened supply concerns while the market weighs the prospects of another OPEC production cut.

While crude eyes another run at $50 a barrel, persistent worries about oil demand could make it tough to hold onto such gains.

Light, sweet crude for April delivery settled up $1.55, or 3.4%, at $47.07 a barrel on the New York Mercantile Exchange, the highest settlement since Jan. 6. April Brent crude on the ICE futures exchange settled 72 cents lower at $44.13 a barrel.

Crude prices continued the momentum from last week's rally, marking an intraday high just short of $49 a barrel, as traders considered another output cut when the Organization of Petroleum Exporting Countries meets in Vienna Sunday. This could support oil prices all week, strengthened further by the cartel's better-than-expected compliance with previously agreed cuts.

However, oil demand, which remains weak, continues to stymie efforts to push higher.

"OPEC is having an effect but the equity markets are a big driver," said Kyle Cooper, director of research at IAF Advisors in Houston. "I think we're going to be very constrained for a while -- holding above $50 a barrel is going to be really tough."

OPEC's compliance with reductions totaling 4.2 million stand at around 80%-85%, according to the group's Secretary General Abdalla Salem El Badri, just above analyst estimates. Mr. El Badri and other members have hinted at the possibility of further cuts, though OPEC's de facto leader Saudi Arabia has remained characteristically quiet.

The market got a further boost earlier Monday after Royal Dutch Shell PLC was forced to halt deliveries from the Forcados export terminal following a recent militant attack on a Nigerian oil pipeline. The attack disrupted around 50,000 to 100,000 barrels a day of production, a Nigerian oil official said, and Shell expects the stoppage to last through April.

[Potential OPEC Cut Lifts Oil Prices] Getty Images

OPEC Secretary General Abdalla Salem El-Badri

The Anglo-Dutch major now has four force majeures in place in Nigeria, Shell spokesman Rainer Winzenried said. The declaration protects Shell from lawsuits for not meeting oil deliveries to customers due to actions outside the company's control.

Nymex crude also extended its premium to Brent, restoring the normal balance that was knocked out of whack recently by soaring oil stockpiles at Nymex delivery point Cushing, Okla.

"Inventory levels in Cushing haven't changed all that much, but there's a perception that they're pretty close to full and aren't building anymore," said Tom Bentz, an analyst at BNP Paribas Commodity Futures Inc. in New York.

He noted that the premium that the Nymex May crude commands over the April contract -- a phenomenon known as contango -- has also narrowed considerably.

"There's the expectations that once the refineries come back out of maintenance, that'll cut into future supplies, but nothing's fundamentally changed," Mr. Bentz said. "But the perceptions are sometimes more important."

Front-month April reformulated gasoline blendstock, or RBOB, settled 29 points, or 0.2%, higher at $1.3351 a gallon. April heating oil settled 1.4 cents lower at $1.2154 a gallon.