Crude Oil Trades Above $125 After Attack on Nigerian Pipeline

By Nesa Subrahmaniyan

July 29 (Bloomberg) -- Crude oil traded above $125 a barrel in New York after rising 1.2 percent yesterday as Royal Dutch Shell Plc reduced Nigerian production because of an attack on a pipeline by militants.

Nigeria's main militant group, the Movement for the Emancipation of the Niger Delta, claimed responsibility for the attack. The incident occurred on the Nembe Creek trunk line, and Shell said it had to cut some output without specifying the amount of production lost.

``The Nigerian attacks galvanized support on the supply side,'' said Gerard Burg, energy and minerals economist with National Australia Bank Ltd. in Melbourne. ``Price declines in the past few weeks were demand related but supply issues, which have been the key driver for prices this year, are back in the headlines.''

Crude oil for September delivery rose as much as 86 cents, or 0.7 percent, to $125.59 a barrel at 9:59 a.m. Singapore time on the New York Mercantile Exchange. Oil has risen 63 percent in the past year. Yesterday, crude gained $1.47, or 1.2 percent, to $124.73 a barrel.

Prices have dropped more than $20 from the record $147.27 a barrel reached on July 11 on concern that high prices have cut demand for fuel in the U.S., the world's largest energy- consumer. The nation's motorists drove less in May than a year earlier, a seventh consecutive monthly drop, the Federal Highway Administration reported yesterday.

The International Monetary Fund yesterday said there's no end in sight to the U.S. housing recession and warned that deteriorating credit conditions for consumers and banks may prolong a period of slow economic growth.

``Consumers are responding to higher oil prices and are changing their habits,'' National Australia's Burg said.

Nigerian Attacks

Brent crude oil for September settlement rose 44 cents to $126.28 a barrel at 9:20 a.m. Singapore time on London's ICE Futures Europe exchange. Yesterday, the contract gained $1.32, or 1.1 percent, to $125.84 a barrel.

The Nigerian pipeline attacks occurred at 1:15 a.m. local time yesterday, Movement for the Emancipation of the Niger Delta spokesman Jomo Gbomo said in an e-mailed statement. Assaults on Nigerian oil facilities have cut output by 20 percent since 2006 and reduced the country to the status of Africa's second-largest producer, after Angola.

Iran's President Mahmoud Ahmadinejad said his country has 6,000 uranium-enriching centrifuges, the Associated Press reported July 27. The Middle East's second-largest producer of oil has threatened to blockade the Strait of Hormuz, the export channel for a quarter of the world's crude oil, if its nuclear facilities are targeted.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.