Oil: Price climbs nearly 3 per cent on US refinery woes

NEW YORK - Oil vaulted over US$72 a barrel today, reversing a two-day slide, as problems at a handful of US refineries and the kidnapping of foreign oil workers in Nigeria renewed concern about risks to supply.

The continuing standoff between the West and Iran over Tehran's nuclear ambitions also had the market on edge, oil dealers said.

US crude oil rose US$1.99, or 2.83 per cent, to US$72.33 a barrel, having reached as high as US$72.70. London Brent gained US$1.64 to US$71.03 a barrel.

Five oil refineries in Texas and Delaware reported outages since yesterday, most due to foul weather and lightning strikes -- ramping up concerns over petrol supply at the start of the summer driving season.

"At this time of the year you want all the refineries running," said Bill O'Grady, analyst at A.G. Edwards. "The fact that there are these outages is a big deal." Valero said today it was restarting normal production at its Corpus Christi, Texas, and Delaware City, Delaware, refineries after brief weather-related outages. It added that repairs on its Port Arthur, Texas refinery, would cut into petrol output for another 10 days.

Refining companies Citgo and Flint Hills also reported refinery production cuts in Corpus Christi, which was battered by severe thunder storms yesterday.

The news helped boost US petrol futures 7.03 cents, or more than 3 per cent, to US$2.1975 a gallon.

The kidnappings of eight workers in a raid on an oil rig off the coast of Nigeria today added to concerns, and followed news yesterday of a further cut to Nigerian oil output after a pipeline leak.

"Rather than Nigerian supply recovering, losses are deepening," said Deborah White of SG CIB in Paris. "The geopolitical risks are on the supply side. Security is worsening in Nigeria and Iraq." In the night-time raid on a rig off the country's coast, some 20 to 30 attackers fired shots as they boarded from four speed boats.

Royal Dutch Shell said it cut Nigerian production by 50,000 barrels per day due to a pipeline leak. The leak brings Shell's output loss in Nigeria to 505,000 bpd, after militant attacks this year shut several facilities.

The Organisation of Petroleum Exporting Countries, as expected, agreed in Caracas on Thursday to keep pumping close to full capacity. But prices held within sight of the record high of US$75.35, hit on April 21, frustrating oil ministers worried that sustained high prices could slow economic growth.

Strong demand from the United States and China, a shortage of refineries to produce motor fuels, supply cuts in Iraq and Nigeria and the international dispute over Iran's nuclear work have fed into a 4-1/2-year rally that has added US$50 to the price of a barrel of oil.

Saudi Oil Minister Ali al-Naimi told reporters in Caracas that oil markets were "oversupplied and overpriced." In an interview with Arab daily Al Hayat, he said fundamentals did not support a price above US$50 and forecast rising interest rates would hurt demand.

"Interest rates are rising and inflation is increasing. Attempts to control (inflation) today should raise interest rates. If interest rates rise, liquidity will decrease, which will affect demand for fuel," Naimi said.

Prices had fallen by US$2 on Thursday after the United States offered to start talks with Iran, the world's fourth biggest oil exporter, provided it suspended uranium enrichment.

But a top Iranian official said today Tehran would not stop enrichment activities, despite international pressure.

- REUTERS