GO
Loading...

Oil Closes Near $125 on Nigeria, Iran Worries

Associated Press
Monday, 28 Jul 2008 | 3:29 PM ET

Oil prices rose Monday, approaching $125 a barrel after militants sabotaged two oil pipelines in Nigeria and Iran claimed that it had doubled the size of its nuclear program but signaled a willingness to work with the U.S.

The gains, however, were tempered by more evidence that high gas prices are causing Americans to keep their cars off the roads. The U.S. Transportation Department said Monday that U.S. drivers logged 9.6 billion fewer vehicle miles in May—or 3.7 percent—compared to the same period last year, the biggest drop ever for the historically busy summer driving month.

U.S. light, sweet crude for September delivery rose $1.47 to settle at $124.73 a barrel on the New York Mercantile Exchange.

London Brent crude for September delivery rose $1.36 cents to $125.88 a barrel on the ICE Futures exchange.

Prices were expected rise some after crude's steep nosedive over the past two weeks. The contract fell $2.23 to settle at $123.26 a barrel on Friday — oil's lowest point in weeks — as record prices continue to dent in demand.

In another sign that high fuel prices are curbing consumption, the average price for gasoline in the U.S. fell just over a penny to $3.958 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express.

Oil rallied above $125 a barrel early Monday on more worries over Iran's nuclear program. Iranian President Mahmoud Ahmadinejad announced Saturday that Iran now has 6,000 centrifuges — a figure that doubled past estimates and ratcheted up tension in the standoff between Western countries and OPEC's second-largest producer.

"The comments by the Iranian president are a reminder that the Iranian situation remains fluid," said Victor Shum, an energy analyst with consulting firm Purvin & Gertz in Singapore.

However, Ahmadinejad struck a lighter tone in comments aired Monday, telling NBC that Iran would be open to a "new approach" from the U.S. in seeking a peaceful resolution to his country's nuclear ambitions. He added that current oil prices were "not realistic," saying: "Some powers are manipulating the prices inside the market." He did not elaborate.

Ahmadinejad's comments were viewed as conciliatory among oil traders and helped take momentum out of crude's earlier rally, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

"We pumped a little geopolitical risk premium into the pricing structure and then we took it right back," said Ritterbusch.

He said Ahmadinejad's bearish oil comments also reflect an economic reality for the oil-rich nation: The higher crude prices go, the less people will be able to afford it, hurting producing countries' bottom lines.

"They would like to see lower prices because they're very concerned that high prices will choke off demand and hurt them in the long run," Ritterbusch said.

Meanwhile, an overnight attack on Nigerian oil installations boosted prices. The country's main militant group, The Movement for the Emancipation of the Niger Delta, attacked two oil pipelines in southern Rivers State believed to be owned by a unit of Royal Dutch Shell.

Shell said a pipeline had been damaged in attacks and that some crude production had been shut down to prevent an oil spill. No other details were given.

The Movement for the Emancipation of the Niger Delta says it's acting to force the Nigerian federal government to send more oil-industry funds to the southern region, which produces all of Nigeria's crude oil but remains impoverished after decades of corrupt and wasteful governance.

Meanwhile, the strikingly large drop in miles driven by Americans underscored the rapidly shifting fuel consumption habits in the world's thirstiest consumer.

Americans have travelled 29.8 billion fewer miles in the first five months of 2008 compared the same period over the previous year, U.S. Transportation Secratary Mary E. Peters said Monday.

"You're seeing demand destruction in motion," Flynn said. "And some of this demand is never coming back back because people aren't going to be buying those SUVs anymore because Detroit isn't making them."

In another sign traders think oil prices may have peaked, the U.S. Commodity Futures Trading Commission said that for the first time in 17 months, a majority of large commodities traders are shorting oil prices — or betting that prices will fall.

The shift in sentiment follows crude stark descent over the past two weeks. Crude has fallen in seven of the last 10 sessions, and is down about 16 percent from its peak above $147 a barrel earlier this month. Still, prices remain about 65 percent higher than at this time last year.

In other Nymex trading Monday, heating oil futures rose 3.91 cents to settle at $3.562 a gallon while gasoline prices added 3.77 cents to settle at $3.07 a gallon.

Natural gas futures added 5.7 cents to $9.141 per 1,000 cubic feet.

Contact Commodities

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More