Oil: Price rebounds as violence flares in Nigeria

NEW YORK - Oil prices rebounded on Wednesday after violence flared up between militants and government troops in oil exporter Nigeria.

US crude rose 73 cents to US$59.41 a barrel, after falling to an 8-month low of US$57.75 on bulging US fuel inventories ahead of the winter heating season. London Brent rose 79 cents to US$59.22.

Nigerian militants and troops engaged in a major firefight near an oil pumping station operated by Royal Dutch Shell in the eastern part of the Niger Delta on Wednesday, militants said.

"If there is more fighting there (in Nigeria), our supplies of light, sweet crude will be directly affected," said Mark Waggoner, president of Excel Futures in Huntington Beach, California.

The militant group Movement for the Emancipation of the Niger Delta said it killed nine soldiers and seized two military boats during a 90-minute firefight with troops in the oil heartland of the world's eighth largest oil exporter.

The group said in an email to the media that it was sending another 500 fighters into Rivers State in the eastern delta to begin a "number of strategic attacks" on the oil industry.

Oil prices had been deep in negative territory earlier in the day after the US government released a report showing a surprise build in national crude stockpiles.

The US Energy Information Administration said in its weekly report that crude stocks rose 3.3 million barrels last week, confounding analysts who had forecast a small decline in supplies.

"Overall this report is bearish. The drop in refinery activity was the surprise that led to the bigger-than-expected increase in crude inventories," said Bill O'Grady of A.G. Edwards.

Domestic distillate supplies rose a less-than-expected 200,000 barrels last week, but remain at their highest level since 1999, while petrol stocks rose 1.2 million barrels, the EIA report showed.

"Inventories are huge - sentiment is completely bearish," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

Oil's 25 per cent price drop from its mid-July peak of US$78.40 prompted Opec President Edmund Daukoru on Tuesday to call on other Opec members to follow the lead of Nigeria and Venezuela in trimming production.

Kuwait's oil minister said it may take action if prices fall further below US$60 a barrel.

"What's frightened Opec is the speed of the price decline, and it's easy to rationalize because stocks are high. There is definite cause for concern," said energy consultant Geoff Pyne. "But oil at US$60 is still high in absolute terms, so it's a difficult political decision for some producers to cut supply, especially Saudi Arabia."

Saudi Arabia's ambassador to the United States said Wednesday that global crude supplies were abundant and that Opec would consider the high stockpiles at its next meeting in Nigeria in December.

Venezuelan President Hugo Chavez said the price of oil should not fall below US$60 a barrel, while the country's energy minister said markets were oversupplied by 500,000 barrels.

- REUTERS