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Oil rises near $117 on supply fears

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[May 05, 2008]  VIENNA, Austria (AP) -- Oil prices rose Monday, supported by weekend news of an attack on a Nigerian oil installation, but with gains limited by a stronger U.S. dollar.

RestaurantRoyal Dutch Shell PLC spokesman Precious Okolobo said Saturday that attackers hit a flow station belonging to Shell's joint venture in southern Nigeria and that some oil production had been shut down.

He gave no further details. Flow stations are intersections for pipelines carrying oil from wells to export terminals.

"The geopolitical news (out of Nigeria) is supportive of oil pricing and causes investors to come back into oil," said Victor Shum, an analyst with Purvin & Gertz in Singapore. However, "the strengthening dollar has capped further gains in oil," he said.

Light, sweet crude for June delivery rose 58 cents to $116.90 a barrel by noon in European electronic trading on the New York Mercantile Exchange. The contract rose $3.80 to settle at $116.32 a barrel on Friday.


Crude futures soared Friday after Turkish airstrikes on Kurdish rebel bases in Iraq injected supply concerns into the market.

Also supporting oil prices were concerns about Iran after Supreme Leader Ayatollah Ali Khamenei said Sunday that his country will not bend to international pressure and give up its nuclear program. Iran is the second largest producer in the Organization of Petroleum Exporting Countries.

When conflict breaks out or political tensions rise in the Middle East, investors often buy oil on the belief that supplies could be disrupted.

"The market is supported by strong commodity index fund buying that happened on Friday, driven primarily by a belief that there would be supply issues in the long term," Shum said.

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At the same time, an employment report from the U.S. Labor Department also gave investors reason to be more optimistic about the U.S. economy -- and raised the floor on prices. The U.S. is the world's largest consumer of oil and any drop in demand there can have a global impact on prices.

Vienna's JBC Energy described the relatively positive employment figures as "the main bullish factor in the market."

"Positive news on the U.S. economy eased concerns about a recession and made further (U.S. interest) rate cuts ... unlikely," said Monday's JBC newsletter. "Theoretically, this would decrease the amount of money invested in oil as a hedge for the falling dollar."

Oil prices dropped to nearly $110 a barrel on Thursday, helped by the rising U.S. dollar.

A rising dollar undercuts the appeal of commodities such as oil as a hedge against inflation, and makes oil more expensive to investors overseas.

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In other Nymex trading, heating oil futures added more than a penny to $3.2305 a gallon while gasoline prices were flat at $2.9664 gallon. Natural gas futures rose more than 6 cents to $10.84 per 1,000 cubic feet.

[Associated Press; By GEORGE JAHN]

Associated Press writer Gillian Wong contributed to this report from Singapore.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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