LONDON – Oil prices set new one-month highs on Tuesday as output disruptions in Iraq and Nigeria heightened fears over supply security and added momentum to a week-long rally.
U.S. light crude (search) climbed $1.07 to $39.46 a barrel, after touching $39.70, as weekend pipeline sabotage that cut Iraqi oil exports almost in half and a stoppage in Nigeria combined to heighten fears over supply.
London Brent crude (search) rose 76 cents to $37.06 a barrel.
U.S. oil has gained almost four dollars since last Tuesday after markets interpreted comments by Saudi Arabian Oil Minister Ali al-Naimi's that oil prices were "fair" as a sign that OPEC (search) saw no need to push prices lower with more supply.
Other OPEC members have said they were happy with prices, prompting speculation that the group may refrain from rubber-stamping a pre-planned 500,000 barrel per day output quota increase for August at its next meeting, on July 21. Although extra OPEC oil, mostly from Saudi Arabia, has brought the market down from its early June peaks, when New York futures reached a record $42.45 per barrel, fears remain over the security of supply at a time when production capacity is stretched to meet strong demand growth.
Bulls received a boost on Tuesday when French oil major Total said it had declared a force majeure on 225,000 bpd of Nigerian exports following a union protest.
The fields had been shut in since Friday, and had reopened briefly on Monday before white collar union PENGASSAN called again for a halt. Total said it could not say when production might restart, but that it planned to meet union leaders later on Tuesday.
On Monday, PENGASSAN issued ExxonMobil's (XOM) Nigerian subsidiary with a 21-day ultimatum to meet pay demands or face a strike.
With Iraq still suffering from sabotage attacks and with traders fearing supply disruptions at Russian oil giant YUKOS, analysts said U.S. oil could easily top $40 again.
"We could well test the highs again," said Edward Meir at brokerage Man Energy. "We are seeing these incidents just hitting the supply situation, and who knows, that could keep going on."
Iraqi exports were running at about one million barrels per day (bpd) on Tuesday, down from about 1.8 million before attackers bombed a pipeline running to two southern oil terminals and another linking oilfields in the north and south.
An official said exports could recover as soon as Wednesday after testing, now that repairs are completed.
Traders also are worried that Russia's biggest producer, YUKOS (search), may have to cut some of its crude and refined products exports, as it struggles to fund operations with its bank accounts frozen.
YUKOS, teetering on the brink of bankruptcy with almost $7 billion in tax arrears, pumps 1.7 million bpd and exports more than 70 percent of output in the form of crude or oil products, representing more than one-fifth of Russia's total production and exports.