April 22, 2008 / 12:26 AM / 10 years ago

Oil rallies to record near $120 on supply worries

NEW YORK (Reuters) - Oil surged to records near $120 a barrel on Tuesday on the weaker dollar, export disruptions from Nigerian rebel attacks and concerns a Scottish refinery strike could hit North Sea production.

Venezuela's President Hugo Chavez takes a sample of crude during his weekly broadcast at a nationalized oil field at Orinoco's belt in the southern strip of the eastern Orinoco River February 17, 2008. REUTERS/Miraflores Palace/Handout

Further support came from data showing demand in China, the world’s No. 2 consumer, leaped 8 percent in March from a year ago, the fastest rate in 19 months as refiners boosted imports ahead of the Olympics.

U.S. crude settled up $1.89 at $119.37 a barrel after hitting an all-time peak of $119.90 earlier. London Brent crude gained $1.52 to settle at $115.95 a barrel, after rising to a record peak of $116.75.

Oil’s fresh highs extended a rally that has seen prices climb more than five-fold since 2002, as booming demand from emerging markets such as China has coincided with long-term supply constraints.

The slumping U.S. greenback, which tumbled to fresh lows against the euro on Tuesday, has also helped boost dollar-denominated commodities like oil and attracted speculative inflows from hedge funds.

“The trend is up and the market didn’t break down when it moved lower in the morning, and you have the weak dollar and the supply disruptions are in the mix,” said Eric Wittenauer, analyst at Wachovia Securities.

Pipeline attacks in OPEC member Nigeria last week shut 169,000 barrels per day (bpd) of Bonny Light production, forcing Royal Dutch Shell Plc to declare force majeure on crude oil exports.

Nigerian rebels also attacked two Shell oil pipelines in the Niger Delta on Monday.

Management and union officials are in talks to avoid a planned two-day strike at Scotland’s Grangemouth refinery, which could force the shut-in of some oil and natural gas production from the North Sea.

Oil producers gathered in Rome for the International Energy Forum said they can do nothing to halt oil’s rally and the world might have to live with even higher prices if it wants supplies for the future.

Ali al-Naimi, oil minister to OPEC kingpin Saudi Arabia, said a lack of investment in crude and refining capacity — not a lack of reserves — was driving prices higher.

“Recently, I have observed an unprecedented level of uncertainty, doubt and even fear in discussions about the future of energy and its impact on global economic prospects,” Naimi said.

“I can assure you unequivocally that the world is not running out of oil.”

Rising energy costs and the U.S. economic crisis have forced analysts to revise downward oil demand growth forecasts for the world’s largest consumer, which has lobbied OPEC to increase output to help lower prices.

President George W. Bush on Tuesday said he was concerned about record-high crude oil and gasoline prices, and said the United States needs to tap an Alaskan wildlife refuge to boost supply.

Reporting by Matthew Robinson, Gene Ramos, and Robert Gibbons in New York; Jane Merriman in London; Felicia Loo in Singapore; Editing by David Gregorio

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