Oil rises above $131 a barrel in Asia

[July 18, 2008]  SINGAPORE (AP) -- Oil rebounded to near $131 a barrel Friday in Asia as news of an output cut in Nigeria helped to halt the sharp decline in prices that began three days ago.

Eni SpA said Thursday that it had shut down pipelines carrying 47,000 barrels of oil a day after a "sudden drop of pressure."

A Nigerian military official said an explosion had damaged an Eni pipeline in the country's oil-rich south early Thursday, although he didn't know how severely.

"I can confirm that there was an explosion, but we don't yet know if the pipeline was vandalized or if it was an accident," Col. Chris Musa, the head of the Bayelsa State military, told The Associated Press.

Eni said in a statement that the causes of the incident were unknown but that it had already call in units to start repairs.

"A lot of the threat to Nigerian production has already been priced in, but that explosion may create some interest," said Mark Pervan, a senior commodities strategist with ANZ Bank in Melbourne.

Nigeria's major militant group -- the Movement for the Emancipation of the Niger Delta -- denied any involvement in the blast. Armed gangs, some with political motives, regularly attack oil installations in Nigeria's southern river delta region.

Attacks on the region's oil industry infrastructure in the past two years have slashed oil output by almost a quarter in Nigeria, Africa's top crude producer. The instability has helped push worldwide crude prices to historic highs.

Midafternoon in Singapore, light, sweet crude for August delivery was up $1.66 at $130.95 a barrel in electronic trading on the New York Mercantile Exchange.

The contract fell $5.31 to settle at $129.29 a barrel in the overnight floor session. That brought the total decline over the past three days to nearly $16.

Despite the rebound in Asian trading, oil is still down more than 10 percent since Monday.

Rising crude inventories and comments from Federal Reserve Chairman Ben Bernanke warning of "significant challenges" facing the U.S. economy stoked expectations this week that slowing economic activity will help cut demand for oil products, such as gasoline.

"The rise in inventories gave investors a reason to sell what looks like was an over-bought market," said Pervan. The market also reacted this week to Bernanke's comments, "which were much more cautious than before," he said.

Pervan said he expects crude oil to average $135 a barrel in the third quarter and $125 a barrel in the fourth quarter.

In other Nymex trade, heating oil futures rose 0.25 cent to $3.77 a gallon while gasoline prices rose 4.1 cents to $3.2039 a gallon. Natural gas futures rose 3.9 cents to $10.576 per 1,000 cubic feet.

[Associated Press; By ALEX KENNEDY]

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