Oil bounces on supply disruptions

14/04/2008 - 16:10

By Ikuko Kao

LONDON (Reuters) - Oil prices jumped on Monday because of a U.S. pipeline shutdown and some production losses in Nigeria following a fire at a flow station.

U.S. crude oil futures rose 71 cents to $110.84 a barrel by 8:50 a.m. EDT (1250 GMT), after dropping to as low as $109.56.

Prices hit a record high of $112.21 a barrel last Wednesday after a big fall in U.S. oil inventories.

London Brent crude rose 48 cents to $109.23.

The Capline crude oil pipeline, which brings crude from the Gulf of Mexico to the U.S. Midwest, remained shut on Sunday afternoon as work continued to repair a leak, operator Shell Oil Co. U.S. unit of Royal Dutch Shell said.

It could not estimate when the 667-mile (1,073 kilometre) line would return to service.

Eni's Beniboye oil flow station in Nigeria has been losing 5,000 barrels of oil per day due to a fire that broke out during the night between April 12 and 13 after sabotage, the Italian energy firm said on Monday.

"The market is happy to trade higher," a broker said.

The dollar weakened on Monday, reversing its initial gains earlier in the day, pushing up oil prices, some analysts said.

"WTI continues to be tightly correlated to the movements of the dollar index," Petromatrix said in a research note.

The recent weakness of the U.S. currency has prompted investors to shift money from dollar assets to commodities markets, partly contributing oil's rally to new peaks.

During Asian and London trading, oil was mostly pressured down as weaker stock markets underlined economic gloom and the expectation of falling energy demand.

On Saturday, OPEC's head of petroleum market analysis told the International Monetary Fund's steering committee that global demand appeared to be softening, and that high oil prices in recent months were due more to financial market developments than fundamental growth in demand.

"While financial market dynamics have been a contributing factor to record high prices, oil market fundamentals point to a market which is currently well supplied and the balance is expected to soften further due to lower seasonal demand in the coming months," Mohammad Alipour-Jeddi said in a statement.

His comments were set against growing signs of economic slowdown in the United States and after the International Energy Agency lowered its oil demand forecasts on Friday.

U.S. consumer confidence fell to its lowest in more than a quarter century, a survey showed late last week.

Speculators in the crude oil market increased their net long positions in U.S. crude in the week to April 8, according to regulatory data released on Friday.

(Additional reporting by Jonathan Leff in Singapore; editing by James Jukwey)

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