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Oil sets new high as Nigeria problems continue

Oil futures have set new record highs above $122 a barrel, amid continuing attacks on Nigeria's oil infrastructure.

Over the weekend, Royal Dutch Shell, which is losing 164,000 barrels a day of crude output in Nigeria, Africa's largest producer and an important US supplier, reported another militant attack on a pump station.

US WTI crude futures for June delivery rose to a record $122.73 a barrel on Tuesday, easing slightly to around 122/b on Wednesday. Brent June futures, meanwhile, were around $120/b on Wednesday.

There were, however, some reasons for optimism. ExxonMobil's Nigerian production, amounting to 0.8m barrels a day, has now reached normal levels, according to a local company source. Operations restarted on Friday, enabling the company to lift force majeure on crude loadings. The shut-in was caused by the withdrawal of operations services by the Petroleum and Natural Gas Senior Staff Association (Pengassan), the employee labour union.

In addition, Niger Delta rebels have said they would stop attacks on the oil industry if the government allows former US president Jimmy Carter to mediate in the conflict.

Nonetheless, it is probable that further disruptions will occur. And, given the tightness in the supply-demand balance, there is "no reason" for prices not to go higher from this point, says Paul Horsnell, an analyst at Barclays Capital. "The supply side if anything looks worse than a year ago, but demand looks reasonably robust. A year ago, non-Opec supply growth was falling short of demand growth by around 400,000 b/d, he points out. Barclays Capital estimates that the gap has widened to as much as 1m b/d.

Indeed, a Goldman Sachs research note this week said claimed that the "lack of adequate supply growth" may be bringing the "energy crisis" to a head. The bank has raised its 2008 spot crude oil price forecasts, to $108/b for WTI (previously $96/b) and to $108/b for Brent (previously $95/b). And it says an oil-price "super spike" to $150-$200 a barrel is increasingly likely within the next six to 12 months.


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