Oil Is Steady After Gaining on Attack on Shell Nigeria Pipeline

By Mark Shenk

July 29 (Bloomberg) -- Crude oil was little changed after rising yesterday as Royal Dutch Shell Plc reduced Nigerian production because of an attack on a pipeline by militants.

The incident occurred on the Nembe Creek trunk line, Shell spokeswoman Caroline Wittgen said. The company said it shut some output, but didn't specify the amount. The rebel group, the Movement for the Emancipation of the Niger Delta, or MEND, claimed responsibility for the assault.

``News that the attack in Nigeria had cut Shell production is sending prices higher,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``I don't know how much higher prices can go because demand is contracting.''

Crude oil for September delivery rose 16 cents to $124.89 a barrel at 8:22 a.m. Sydney time on the New York Mercantile Exchange. Oil has risen 62 percent in the past year. Yesterday, crude gained $1.47, or 1.2 percent, to $124.73 a barrel. Futures settled at $123.26 a barrel on July 25, the lowest close since June 4.

Prices have dropped more than $22 from the record $147.27 a barrel reached on July 11, on concern that record prices have cut demand for fuel in the U.S., the world's largest energy- consuming country. The nation's motorists drove less in May than a year earlier, a seventh consecutive monthly drop, the Federal Highway Administration reported yesterday.

``It's not surprising that prices would rebound a bit after the pretty steep fall of the last couple weeks,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``We'll be paying attention to any more news that comes from Nigeria.''

Nigerian Attacks

The attacks occurred at 1:15 a.m. local time yesterday, MEND 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 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.

Prices also rose because the dollar dropped against the euro, bolstering the appeal of commodities as a hedge. The currency declined for a second day after Federal Reserve Bank of Minneapolis President Gary Stern told the Financial Times the U.S. credit crunch will get worse.

The dollar traded at $1.5743 per euro at 6:15 a.m. in Tokyo, after falling 0.2 percent yesterday. The dollar traded at 107.46 yen, following a 0.4 percent decline yesterday, when it touched 108.07, the highest since June 26.

``The market is getting some support from the Nigerian pipeline attack over the weekend,'' said Tom Bentz, a broker at BNP Paribas in New York. ``We are also getting some support from the lower dollar.''

Brent crude oil for September settlement rose $1.32, or 1.1 percent, to settle at $125.84 a barrel on London's ICE Futures Europe exchange yesterday.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.