May 21, 2007

Crude Oil Climbs Above $65 on Concern Over U.S. Gasoline Supply

By Eduard Gismatullin

May 21 (Bloomberg) -- Crude oil climbed above $65 a barrel in New York amid concern the U.S. won't have enough gasoline when the summer driving season starts next week.

ConocoPhillips and Murphy Oil Corp. shut refinery units for repairs last week, heightening concern not enough gasoline was being produced. Gasoline supplies fell 7.5 percent below their five-year average during the week ended May 11, according to the U.S. Energy Department.

``People are worrying the U.S. is not able to cope with summer driving-season demand,'' said Edo Gerbrands, a trader with Fortis Bank in Brussels. ``We can go much higher.''

Crude oil for June delivery rose as much as 44 cents, or 0.7 percent, to $65.38 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The June contract, which expires tomorrow, traded at $65.25 at 12:48 p.m. in London. The more-active July future rose 28 cents to $66.26 a barrel.

Brent crude for July settlement rose as much as 87 cents, or 1.3 percent, to $70.29 a barrel on the ICE Futures Exchange and traded at $70.06 at 12:52 p.m. in London.

Oil also rose partly because Iran said it was going ahead with its nuclear-industry development, Gerbrands said. ``Geopolitics is still in the news,'' he said.

Iran is building a reactor using its own technology, Agence France-Presse reported May 19, citing Mohammad Saeedi, a deputy head of Iran's Atomic Energy Organization. Iran had said in March it would build a reactor using domestic equipment and technologies.

Iran, the Middle East's second-largest oil supplier, says it needs nuclear power to generate electricity. The U.S. and its allies say Iran wants a nuclear bomb. Oil traders and analysts are concerned sanctions or military action against Iran would disrupt oil exports from the Persian Gulf.

Likely to Rise

Oil rose 4.1 percent last week and will probably gain this week, according to a Bloomberg News survey of 40 analysts. Twenty of those surveyed said last week prices would rise. Thirteen said prices would decline and seven forecast little change.

``Problems with U.S. refining capacity are making the U.S. more dependent on imports from other parts of the world,'' the Centre for Global Energy Studies said today in an e-mailed report. ``There is insufficient deep conversion capacity to crack heavy oil into transportation fuels.''

The U.S. summer driving season, when gasoline demand peaks, begins with the Memorial Day holiday on May 28 and runs through Labor Day in early September. With the season approaching, a series of refinery halts has curbed production of gasoline.

Refinery Halts

Preem Petroleum AB, a Swedish oil refiner, will operate its 125,000-barrel-a-day Gothenburg refinery at reduced capacity for about three weeks after it resumes operations in early June, spokesman Thomas Oegren said. The refinery's heating-oil unit was damaged by a fire May 13 as the plant started up after maintenance.

Exxon Mobil Corp. restarted a 124,500-barrel-a-day crude distillation unit at its plant in Singapore that had been shut May 3 because of a fire that killed three workers.

Valero Energy Corp., the largest U.S. refiner, said a wet gas compressor failure caused flaring at its 295,000-barrel-a-day refinery in Port Arthur, Texas, on May 19.

ConocoPhillips plans to restart a 24,000-barrel-a-day fluid catalytic cracking unit at its Ponca City, Oklahoma, refinery early this week after unplanned repairs, the company said yesterday.

``Over the weekend, the U.S. refining industry experienced a series of further glitches which further threaten the supply,'' James Neale, a London-based analyst at Citigroup Global Markets Ltd., wrote today in an e-mailed report. ``The industry seems to continue to be struggling to find a supply response to the price signal.''

Gasoline for June delivery was up 0.38 cent at $2.4115 a gallon in after-hours electronic trading on the New York Mercantile Exchange. It has risen 51 percent since the start of the year.

Nigerian Unrest

In Nigeria, the Movement for the Emancipation of the Niger Delta, the main militant group in the oil-producing Niger River delta, said it had no plans to attack a refinery in Port Harcourt to protest the government's sale of its stake in the plant last week. The group may attack a pipeline supplying the refinery, Jomo Gbomo, a MEND spokesman, said today.

Unrest has halted about 900,000 barrels a day of crude output have been halted in Nigeria, Africa's biggest oil producer, Vienna- based PVM Oil Associates GmbH estimates.

Union leaders said yesterday oil and gas workers would stop work on May 24 to protest the sale of the government's stake in the refinery to Bluestar Oil Services Ltd. Consortium, a Nigerian group, for $561 million.

Expressed in U.S. dollars, West Texas Intermediate, the New York-traded benchmark, has fallen about 6 percent in the past 12 months. Oil has dropped 11 percent in euros, 11 percent in British pounds. WTI price rose almost 2 percent in yen.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

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