Oil jumps on rising Iran-Israel tensions, Nigeria

Oil prices rose nearly $3 on Friday amid escalating tensions between Israel and Iran and supply disruptions in Nigeria triggered by militant attacks on a major offshore field.

• The gains marked a reversal from heavy losses Thursday that had been triggered by news China was raising domestic fuel prices — a move that could slow demand growth in the world’s second largest energy consumer — and expectations Saudi Arabia was planning a 6 percent output hike.
• “The petroleum markets rebounded … on worries that Israeli military exercises held in the first week of June might have been preparation for a strike against Iranian nuclear facilities,” said Tim Evans, energy analyst for Citi Futures Perspective in New York.
• U.S. July crude rose $2.69 to settle at $134.62 a barrel, off highs of $136.80. London Brent was up $2.86 at $134.86.
• A hardline Iranian cleric said on Friday that Israel and its U.S. ally would receive a “slap in the face” if they speak of using force against the Islamic Republic, a member of the Organization of Petroleum Exporting Countries.
• The comment came after a report citing U.S. officials saying that Israel appeared to be rehearsing for a bombing raid on Iran’s nuclear facilities.
• Energy experts are concerned any conflict in Iran could lead to a shutdown of the Strait of Hormuz, a waterway separating Iran from the Arabian Peninsula, through which roughly 40 percent of the world’s traded oil is shipped.
• Adding to oil’s gains Friday, Royal Dutch Shell shut 220,000 barrels of daily production in Nigeria after militants in speedboats attacked the Bonga offshore oil facility.
• Shell said it was too soon to say how long output at the deepwater installation would be shut. Nigeria, another OPEC member, is already producing about 20 percent below potential due to sabotage by militants in the Niger Delta oil hub.
• CHINA MOVE TO BACKFIRE?
• Oil prices had plunged nearly $5 in the previous session after China raised fuel prices by up to 18 percent, its first hike in eight months, as the government bowed to a nearly $40 increase in crude prices since the last hike in November.
• Initial forecasts suggested the move by China would hurt demand, but some analysts now say consumption could rise as the price increase will encourage healthier supply at the pumps.
• Chinese fuel retailers have had to deal with long queues of customers and rationing as refiners cut back on production to limit hefty losses made by selling discounted fuel.
• “We do not think that a country where consumers are used to waiting 3 hours for automotive fuel in many cases will see significant negative demand elasticity from a simple 20 percent price increase,” said Citi analyst James Neale.
• Demand for oil by China, India and the Middle East has been cited as a factor behind crude’s almost sevenfold surge from $20 six years ago to a record high of nearly $140 a barrel.
• Oil’s rally on Friday also came despite assurances from Saudi Arabia that it was raising its production after months of pressure from consumer nations calling for more supply.
• Saudi Oil Minister Ali al-Naimi confirmed on Friday the kingdom will be pumping 9.7 million barrels per day of crude in July, an increase of 550,000 bpd since May.
• Oil traders said Friday’s strength was also supported by a weaker dollar, which improves the purchasing power of buyers using other currencies and encourages investors to ply money into commodities as a hedge against inflation.