Saudi Arabia Boosts Oil Supply; OPEC Ministers Doubt Price Drop

By Maher Chmaytelli and Ayesha Daya

June 23 (Bloomberg) -- Saudi Arabia, the world's biggest oil exporter, plans to raise production for a third-straight month in July and make further increases as needed to curb record prices.

The kingdom will raise daily crude output by 200,000 barrels to 9.7 million barrels next month, Saudi Oil Minister Ali al- Naimi told officials from 35 producing and consuming countries at the summit yesterday in the Red Sea port of Jeddah. OPEC President Chakib Khelil and ministers from Venezuela and Libya said the Saudi initiative would fail to lower prices, blaming oil's climb above $130 a barrel on speculation, rather than a lack of crude.

``I don't think we'll see a lot of downward price movement as a result of this meeting,'' Mike Wittner, Societe Generale's head of oil research in London, said in an interview. ``Another 200,000 barrels a day is not a whole lot. Especially if you compare to a week ago when the first news was a possible 500,000 increase.''

Oil prices rallied to a record $139.89 in New York on June 16, five times the average six years ago, prompting riots and strikes in importing countries, hastening inflation and forcing some fuel consumers, such as airlines, out of business. U.K. Prime Minister Gordon Brown, attending the summit, proposed a ``new deal'' with producing nations, offering them investment opportunities in Western nations in return for greater access to untapped reserves.

``Saudi Arabia is prepared and willing to produce additional barrels of crude above and beyond the 9.7 million barrels per day, which we plan to produce during the month of July, if demand for such quantities materializes and our customers tell us they are needed,'' al-Naimi said.

Rising Demand

World oil demand will rise 800,000 barrels a day, or 0.9 percent, this year, according to the International Energy Agency.

Prices may reach $150 a barrel this summer because of lower U.S. stockpiles and falling supply, according to Jeffrey Currie, head of global commodities research at Goldman Sachs Group Inc. The planned Saudi increase ``is a short-term response to long- term structural problems,'' such as aging oil fields, Goldman analysts said in a June 18 report.

Khelil, who is the president of the Organization of Petroleum Exporting Countries and oil minister for Algeria, said a Saudi increase was ``illogical.'' Asked whether prices would decline after the summit, Khelil and Venezuelan Oil Minister Rafael Ramirez both replied: ``I don't think so.''

John Hall, managing director of London-based consultants John Hall Associates, said Saudi Arabia would need to increase supply by at least 500,000 barrels a day, to push prices lower.

``My guess is you will see prices rise'' as supply disruptions including attacks in Nigeria persist, Hall said in an interview.

Nigeria Losses

Royal Dutch Shell Plc and Chevron Corp. have between them in the past week lost about 300,000 barrels a day of Nigerian production because of militant attacks.

Adjusted for inflation, this year's crude oil prices are at their highest ever level, surpassing a previous peak in 1980 when Iranian production slumped following the 1979 revolution.

Politicians, investors and energy leaders have debated the influence of speculation in the doubling of oil prices during the past year after the U.S. Commodity Futures Trading Commission said on May 29 it was investigating the possible role of index- fund investors. The Jeddah summit also called for improved regulation and more data on index fund activity.

Billionaire investor George Soros said on June 3 oil prices are the result of a ``bubble'' caused by speculation from index funds and a tight balance between supply and demand.

Not Wall Street

Oil billionaire T. Boone Pickens disagreed. ``It doesn't have anything to do with traders on Wall Street or anywhere else,'' he said June 17.

Gains in commodities helped Goldman Sachs, the world's biggest securities firm, surpass analysts' quarterly profit estimates.

American Airlines raised its fuel surcharge by $20 per round trip on June 11 while gasoline topping $4 a gallon in the U.S. is hastening changes in the product line of automakers including General Motors Corp. and Ford Motor Co.

Officials from consuming nations, including German Economic Minister Michael Glos, came to the Jeddah summit expecting extra oil from Saudi Arabia, which had already promised an additional 300,000 barrels a day for June, when U.S. President George W. Bush visited the kingdom in May.

U.S. Drilling

Bush last week called on Congress to lift a 27-year-old moratorium on oil and gas drilling off parts of the U.S. coastline, and his energy secretary, Samuel Bodman, said in Jeddah that a shortage of supply was responsible for high prices.

The market needs between 3 million and 4 million barrels a day of spare production capacity, compared with the 2 million barrels a day currently available, Bodman said. OPEC says the world's spare capacity is about 3 million barrels a day, with two-thirds of that in Saudi Arabia.

Saudi Arabia's production capacity will be 12.5 million barrels a day by the end of 2009, al-Naimi said, and may later rise to 15 million if necessary, using oil from five ``mega'' fields that could potentially start up within three years.

To contact the reporters on this story: Maher Chmaytelli in Jeddah mchmaytelli@bloomberg.netAyesha Daya in Jeddah adaya1@bloomberg.net

Adaro Energy Raises $1.32 Billion From Share Sale in Indonesia

June 9 (Bloomberg) -- PT Adaro Energy, the holding company of Indonesia's second-largest coal producer, raised 12.25 trillion rupiah ($1.32 billion) in the country's biggest domestic initial share sale since 1995 to help fund acquisitions and pay debt.

The Jakarta-based company sold 11.14 billion new shares at 1,100 rupiah apiece, said Vicky Ganda Saputra, a director at PT Danatama Makmur, which is helping to arrange the sale. Investors sought more than six times the amount of shares offered, he said.

``We were surprised by the investors' enthusiasm in buying Adaro shares,'' Saputra said in a phone interview in Jakarta. About 81.3 percent of those buying the shares were foreign investors, he said.

Adaro joins companies including PT Indika Energy, which owns 46 percent of Indonesia's third-biggest coal producer, in tapping the stock market for funds after prices of the fuel surged. Coal prices at Australia's Newcastle port, a benchmark for Asia, rose to a record $158.53 a metric ton in the week ended June 6, according to the globalCOAL NEWC Index.

The measure that tracks Jakarta's 15 mining stocks has more than doubled in the past year while the key Jakarta Composite index rose 15 percent. Shares of PT Indo Tambangraya Megah, a unit of Thailand's Banpu Pcl, have risen 72 percent since their Jakarta trading debut in December as record crude oil prices pulled coal prices higher.

Bumi Rises

Adaro plans to spend 1.63 trillion rupiah to acquire Agalia Energy Investments Pte, which holds stakes in Adaro Energy units. About $100 million of the IPO proceeds will be used to repay debt while 370 billion rupiah will be spent to strengthen the working capital of PT Sapta Indra Sejati, its mining contractor unit.

Shares of PT Bumi Resources, Indonesia's largest coal producer, have more than quadrupled in the past 12 months and traded at 7,900 rupiah on June 6, more than 12 times the estimated earnings for 2009, according to Bloomberg calculations.

Indika priced its shares at the top of a proposed range as investors sought 17 times the amount of stock on offer, the company said in an e-mailed statement on May 26.

Adaro's initial public offering is the largest since November 1995, when PT Telekomunikasi Indonesia raised $1.6 billion from an IPO in Indonesia and the U.S. in which $1.05 billion of the proceeds were from domestic sources.

To contact the reporter on this story: Wahyudi Soeriaatmadja in Jakarta at wahyudi@bloomberg.net.

India's Oil Dilemma

LONDON -

As oil continues to hover around the $130 mark, twice its level from a year ago, Asian governments have reluctantly been giving up their efforts to protect consumers via price controls on refined products such as gasoline. But while Indonesia this week ignored widespread protests and allowed fuel price prices to rise by 28.7% and Taiwan permitted a 15.0% increase, the big India economy is unlikely to follow the same route.

Murli Deora, India's oil minister, said in New Delhi on Friday that a decision about what to do about the soaring price of oil would be made in the next few days.

But the government is likely to be reluctant to pass on the cost of higher oil prices to the Indian consumer, ahead of next year's general elections. Over the weekend, the Congress Party lost control of the state of Karnataka to the main opposition, the Bharatiya Janata Party, in regional elections.

Adding to its reluctance is inflation, which has continued to soar despite cuts to import duties and tighter controls on liquidity. Data published on Friday showed inflation for the week rose to a staggering 8.1%. (See: "The Fly In India's Growth Story" )

The impact of the government policy has been devastating for India's three major state-run oil companies, Indian Oil, Bharat Petroleum and Hindustan Petroleum.

The government allowed fuel prices to rise by 4.0% in February, and it increased subsidies to oil companies, but that has not stopped them from losing millions of dollars a day. (See: "India Raises Ceiling On Gasoline Prices, A Little" )

The country's largest oil company, Indian Oil reported on Wednesday a fourth-quarter net loss of 4.1 billion rupees ($96.6 million), against a profit of 15.0 billion rupees ($353.4 million) a year earlier, despite receiving 189.97 billion rupees ($4.5 million) in government subsidies.

If the government does allow fuel prices to rise, it will be by a minimal amount, of around 4 rupees (9 cents) a liter, said a Mumbai-based analyst who asked not to be identified.

The government has said that it is considering a number of other options including extending the credit lines to the cash-strapped companies.

Indian Oil closed up 1.1%, at 425.35 rupees ($10.02) on Friday in Mumbai, while Bharat Petroleum fell 0.3%, to 357.70 rupees ($8.43).

Don't Believe Oil-Bubble Babble

When I jotted down all the bubbles I experienced over the past 50 years, I was surprised how long the list ran. What touched off my list-making exercise was not action in oil futures, but the Wells notice that Hank Greenberg received from the U.S. Securities and Exchange Commission.

The long vested American International Group (nyse: AIG - news - people ) headman strove to maintain the company's growth rate with mid-teens regularity. The bubble here was the rising price-earnings ratio that analysts assigned to this property that seemed to tick like a pricey Swiss timepiece, but overnight disintegrated into a one-horse shay.

Here's my bubble list in no particular chronological order: Teaching machines, vending machines, conglomerates, leveraged buyouts, Nasdaq Internet properties in the 1990s, IBM (nyse: IBM - news - people ) in the '70s, gold, the Nifty Fifty, Japanese stocks in the 80s, Chinese stocks last year, the euro today, solar energy plays, golf courses, co-op apartments in New York City, the General Motors (nyse: GM - news - people ) Building, first growth Bordeaux, Romanée Conti burgundy, Cuban cigars, junk bonds, emerging stock markets, subprime mortgages, commercial real estate, private equity, and condominiums in Las Vegas and Florida. I can't leave out 200-foot yachts. Oh, oh! There's also contemporary and modern art, old masters and Impressionist canvases. I'm remembering too much. What about stamps and race horses, baseball cards, soccer teams in Europe and Batman comics?

Even the S&P 500, which peaked in March of 2000 at 1,527. The compounded rate of return with dividends reinvested these past eight years is around 30 basis points. Without a valuation compass, you're goat meat.

Why not throw oil on that list of bubbles? After all, some of us remember when oil sold at $3 a barrel scarcely more than 30 years ago.

Bubble, bubble, toil and trouble. The market is saying don't pay attention to oil commodity futures spiking. Energy-related stocks just shaded their highs by 5 to 10%. A Goldman Sachs analyst broke into print with a $200 a barrel call on oil, but Goldman maybe talks its own book. They run commodity funds and are a major operator in oil futures trading.

The bears on oil point to short covering by traders and energy producers who sold far out futures, which spurted $10 and put the oil market close to a contango position where long futures trade above spot market quotes.

Meanwhile, oil equity analysts choose to stay behind the curve on current oil prices. At year end their earnings models carried oil at $85 a barrel for 2008. At the end of the March quarter, they moved to $95 a barrel and currently $100, far below the $130 spot price. Many analysts are modeling oil at $85 next year and beyond. The upshot of all this gamesmanship is that if oil holds above $125 a barrel, the Street's earnings projections could be 20% too low for major energy properties.

Technology analysts model aggressively. "We don't care what momma don't allow, gonna raise those P/Es anyhow." Everyone's using fiscal 2010 in their earnings models to rationalize the price of Apple (nasdaq: AAPL - news - people ), assuming huge momentum in iPhone sales because cellular carriers are likely to subsidize handsets by $100 to $200 for new subscribers on the upcoming 3G models.

Conversely, there's no expansion of energy price-earnings ratios. In fact, if oil holds above $125 a barrel, P/E ratios are below historic norms. Stocks like ExxonMobil (nyse: XOM - news - people ) (no recommendation) sell below highs made when oil was under $100 a barrel near year end.

In Exxon's case there's some justification. They can't increase oil output and oil field operating costs are inflating 15% annually. Management hasn't spent enough to replenish oil reserves. Obviously they were in the bear camp on oil prices since $60 a barrel, little more than a year ago.

But macro thinking on oil is changing. There is no longer just one lonesome bear on energy supply, Matt Simmons in Texas. The scarcity scenario for oil is taking shape in think tanks around the world. Lukoil believes oil reserves are peaking in Russia. Satellite photography of the Saudi elephantine fields confirms more pressure pumping activity to maintain current production levels.

The developing world is using more and more oil. Even if China's monetary authorities kill off an inflationary economy with high interest rates, their gross domestic product (GDP) isn't going to zero from the present 10%-a-year growth rate.

The near-term test for oil is the U.S economy. If we sink into a deep recession, oil demand sloughs off. So far, with GDP near zero, daily oil imports are down just 200,000 barrels on an 11 million barrel base. Demand destruction is coming with diesel at $5.19 a gallon.

Pickup trucks stay parked in driveways. Ford Motor (nyse: F - news - people ) just owned up to falling demand for pickups and SUVs, always the most profitable models in their line. They no longer see any daylight for earnings this year. Our airlines just sank into the sunset with share prices down to low single digits for Delta (nyse: DAL] - news - people ), U.S. Airways (nyse: LCC - news - people ) and American Airlines (nyse: AMR - news - people ). They are largely un-hedged in jet fuel, burning 500 million or more gallons, quarterly.

The arithmetic of the situation is dolorous. Airlines can't get ahead of the curve with incremental fuel bills rising into the billions for all carriers. They carry sufficient liquid assets to get them through 2008. In a recession setting next year, bankruptcies are an even money bet.

While oil stocks the past 12 months showed buoyancy, they've underperformed recent futures market fireworks. Refining and marketing profits are shrinking with no low-cost heavy oil to refine at wide crack spreads. The golden age of refining is history. There's no price gouging at the pump; refining margins stand paper thin.

The S&P 500 Index at 1,400 can't shake off the economic consequences of escalating oil costs. Consumer spending is suspect, and the cost of doing business rises for everyone--retailers, industrials and utilities. What's saving the economy from stagflation is declining home prices and the absence of wage inflation.

Growth stocks, so far this quarter, have surged 380 basis points ahead of value stocks with technology spearheading the advance. Tech is multinational, less dependent on the domestic economy and operationally oil-free. Google (nasdaq: GOOG - news - people ) continues to gain market share in Web search advertising.

Energy stocks do not meet my criteria of a bubble. The sector peaked above a 25% weighting in the S&P 500 Index more than 25 years ago. Today, energy is a 14% weighting in the index, up from 6% a couple of years ago. A year from now, I expect energy to approach 20% of the index and to give the tech sector a good run for market primacy.

Reservations center on rapidly rising operating costs for all producers, minimal refining margins and cyclically vulnerable chemicals earnings. Everyone's drilling and exploration activity needs to step up. This will boost depreciation expense for years to come.

My oil portfolio embraces service operators like Schlumberger (nyse: SLB - news - people ) and deep-water rig properties like Transocean (nyse: RIG - news - people ) and Diamond Offshore Drilling (nyse: DO - news - people ). They also face fairly sharp increases in costs for materials and labor, but drilling day rates continue to escalate going out five years on operating leases.

Oil and gas producers with rising production still get my money: Occidental Petroleum (nyse: OXY - news - people ), Apache (nyse: APA - news - people ) and Devon Energy (nyse: DVN - news - people ). Apache and Devon could be acquisition targets, as it may be cheaper to buy reserves than to drill for them. ExxonMobil sits smugly on $32 billion in liquid assets earning peanuts.

Valuation is not stretched for the energy sector unless you believe that George Soros is right and that the worldwide credit crisis cuts deeper and lasts longer. Martin Feldstein, back at Harvard, thinks we face the worst recession in the entire postwar period. Alan Greenspan is less definitive, but still worried. Keep in mind that Soros is a fox and could reverse his tracks on a dime. Economists take a little longer. There's always "the other hand."

As far as bubbles that never happened, the Turkish rugs I owned and my grandfather clocks never took off into the stratosphere. Maybe there's just too much supply. With oil, the supply is something less than endless, and the stuff is harder to find.

Martin T. Sosnoff is chairman and founder of Atalanta/Sosnoff Capital, a private-investment management company with over $9 billion in assets under management. Sosnoff has published two books about his experiences on Wall Street, Humble on Wall Street and Silent Investor, Silent Loser. He was a columnist for many years at Forbes magazine and for three years at the New York Post. Martin Sosnoff owns personally, and Atalanta/Sosnoff Capital owns for clients, the following stocks cited in this commentary: IBM, Goldman Sachs, Apple, Google, Schlumberger, Devon, Occidental, Apache, Transocean and Diamond Offshore.

Chevron May Pump Gas From Indonesia's Deep Sea Areas By 2016

By Leony Aurora

May 29 (Bloomberg) -- Chevron Corp., the second-largest U.S. oil company, may start pumping natural gas from Indonesia's deep-sea areas by 2016, boosting exports as Asian buyers pay near-record prices for the cleaner-burning fuel.

Fields in the Ganal block off Borneo island could produce ``close to'' 1 billion cubic feet a day at their peak, said Steve Green, head Chevron's Indonesian and Philippine operations. That's 13 percent of current output in Indonesia, the world's third-largest liquefied natural gas exporter.

The project would more than double Chevron's gas output in Indonesia and boost supply to an LNG plant at Bontang in East Kalimantan province, helping stem a decline in exports. State- run oil company PT Pertamina estimates LNG shipments to a group of Japanese utilities, known as Western buyers, will fall by 75 percent to 3 million tons a year after current contracts expire by March 2011 as output from some existing fields drop.

``There's a very high interest by Japanese, Korean and other new LNG buyers around the world,'' Green, managing director of Chevron IndoAsia Business Unit, said in an interview at his office in Jakarta. ``It's a great opportunity for Indonesia to develop the project. That's why Chevron is interested.''

Chevron produced 606 million cubic feet a day in Indonesia last year, including output from areas that it doesn't operate, according to its annual report. The company's share of gas production in Indonesia was 277 million cubic feet a day, or 5.5 percent of its global output.

Regulatory Approval

Chevron is awaiting approval from Indonesia's oil and gas regulator BPMigas for a development plan submitted last year, Green said. Based on preliminary estimates, it will take six to eight years to develop the fields before they can start pumping gas, he said.

The project's cost will be calculated after the development plan is approved, Green said. He declined to give estimates of the gas reserves at the fields, citing company policy.

Chevron owns 80 percent stake in Ganal area and Eni SpA holds the rest.

The cost of LNG imports by Asian buyers have doubled in the last three years as the price of crude surged. Oil has more than doubled in a year to $130.25 a barrel on the New York Mercantile Exchange today.

Drilling costs have surged as explorers intensify the search for oil and gas after crude prices reach records. The average first-quarter daily rent for deepwater floating rigs operated by Transocean Inc., the world's largest offshore oil driller, jumped 20 percent to $284,100 compared with a year earlier.

`Unique Timing'

``Demand for energy is at an all time high,'' Green said. ``This project enjoys a unique timing in the industry when the market for a project of this magnitude exists.''

Chevron, the biggest crude producer in Indonesia, is also developing a new oil field in Sumatra and investing in existing projects to slow a decline in production, he said.

The company plans to start production at the North Duri field in central Sumatra by end this year, Green said. Chevron may spend $1.3 billion to develop the area, which may produce 65,000 barrels a day at its peak in 2012.

Chevron's concessions in Sumatra, including Minas and Duri areas, pumped 425,000 barrels of oil a day last year, nearly half of Indonesia production.

To contact the reporter on this story: Leony Aurora in Jakarta at laurora@bloomberg.net

Greenspan Says Oil to Keep Rising on Capacity Limits

May 14 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said oil prices will keep rising as energy companies have invested too little in production and infrastructure to cope with higher demand.

Companies haven't been reinvesting enough to keep supply growing in line with demand, Greenspan said via satellite to a conference sponsored by Deutsche Bank AG in Singapore, according to an investment strategist who attended the event and who spoke on the condition of anonymity.

Increasing futures-market activity is expanding the aggregate demand for oil because more needs to be held in storage to meet contracts, Greenspan said, according to the person who attended the event.

``There's evidence that fundamentals are pointing to higher prices,'' said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. ``Even as demand and supply are in balance, the risks to supply and oil's attraction as an inflation hedge are pulling it higher.''

Crude oil rose to a record $126.98 a barrel in New York yesterday on concern U.S. refiners may fail to meet demand for fuels such as diesel and heating oil. Supplies of distillates in developed countries fell 6.7 percent to 477.6 million barrels in March from a year earlier, according to International Energy Agency estimates.

Inflationary Pressures

Crude oil for June delivery was at $125.99 a barrel at 11:53 a.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange.

Higher prices of energy and raw materials are fanning inflation around the world, even as economic growth slows. Fed officials yesterday said they're concerned about rising prices, reinforcing traders' expectations that the central bank's next move will be to raise borrowing costs rather than lower them.

San Francisco Fed President Janet Yellen said the central bank can't be ``complacent about inflation,'' and Cleveland Fed President Sandra Pianalto said prices are rising ``somewhat faster than I would prefer.''

``If Greenspan is correct that prices will rise, then inflationary pressures would set in,'' said CFC Seymour's Kowalczyk. ``That would prompt the Fed to act to tighten lending.''

Greenspan reiterated comments made last week that the worst of the credit crisis will pass once investors fully anticipate the likely losses on securities tied to subprime and other mortgages, where defaults have surged.

Subprime Losses

He said investors are still guessing at the extent of subprime losses, which can't be ascertained until house prices stop declining, according to the person.

This week's U.S. retail sales figures mean the U.S. economy is showing flexibility and resilience, though the depressing effects of the subprime crisis will filter through into other data, he said. Retail sales excluding cars rose 0.5 percent in April, more than twice economists' forecast.

Greenspan said efforts by China to suppress the value of the yuan aren't in the country's long-term interests, adding that the government needs to open its capital account, according to the person who attended the Singapore event.

The yuan has climbed 0.2 percent against the dollar since the start of April after appreciating 4.2 percent in the first quarter.

Greenspan, 82, served as Fed chairman from August 1987 to January 2006. Since then, he has given regular speeches, written a bestselling book and begun advising clients including Deutsche Bank. The paperback version of ``The Age of Turbulence,'' including a new chapter on the credit crisis, is scheduled for publication in August.

Oil drops below $118 a barrel with supply concern easing

Oil prices fell Tuesday amid expectations that a supply disruption in Britain would soon be resolved and as the U.S. dollar strengthened against the euro.

Light, sweet crude for June delivery fell 79 cents to $117.96 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract settled up 23 cents at $118.75 a barrel on Monday.

In London, Brent crude futures fell 96 cents to $115.78 a barrel on the ICE Futures exchange.

Nymex crude futures the previous day rose to a record $119.93 a barrel as labor actions in Nigeria and Scotland threatened crude supplies. But a pipeline that normally carries 700,000 barrels of crude a day to the U.K. is likely to be back in operation soon.

"The Forties pipeline shutdown in the North Sea is fully priced in and the market may be taking some mild profits on the basis that we'll see a return (of operation) ... in the near term," said Mark Pervan, a senior commodity strategist at the ANZ Bank in Melbourne.

The Forties Pipeline System was shut down by BP (nyse: BP - news - people ) PLC because of a 48-hour walkout by employees at a refinery in central Scotland. The refinery powers the onshore processing plant for North Sea crude coming through the network, and once the strike is over later Tuesday, the pipeline system should resume operation within a few days.

Oil prices also retreated from Monday's record as the dollar gained strength against the euro.

At midday in Europe, the euro stood at $1.5568, down from the $1.5645 that it purchased late Monday in New York. The British pound was down to $1.9738 from $1.9900 in New York.

The euro rose to a new all-time high of $1.6018 last week on continued concern about the U.S. economy.

"We're seeing a little bit of ... selling on the back of a firmer U.S. dollar and concerns that the dollar will maybe rebound mildly in the short term," Pervan said.

Energy investors will be closely watching the Federal Reserve's decision Wednesday on interest rates; lower rates tend to weaken the dollar. If, as expected, the Fed lowers a key interest rate by another quarter percentage point and signals that it will temporarily hold off on any future rate cuts, the dollar could strengthen, and oil might fall.

Pervan said the oil market has already priced in the expectation that the Fed will lower the interest rate by 25 basis points.

"There could be growing expectations that it could be the final cut for a while and that we'll see some upward momentum of the dollar," Pervan said.

Analysts also noted that the inability of the Nymex contract to breach the $120 mark was a possible sign that prices may have topped out for now.

"WTI needs to break $120 a barrel to maintain momentum but the resistance has been strong," said Olivier Jakob of Petromatrix in Switzerland.

Meanwhile, other supply concerns continue to support prices.

In Nigeria, workers at an Exxon Mobil Corp. (nyse: XOM - news - people ) joint venture cut production by an unspecified amount to demand more pay. The company notified clients it may not be able to meet its contractual obligations to supply oil, but said some production was not affected. Militant attacks on oil infrastructure have also cut production of Nigeria's light, sweet crude, which is easily refined. After years of attacks, Nigeria's output is dropping and the country can produce only about 75 percent of its official capacity of 2.5 million barrels per day.

"Nigeria's always a factor in oil prices, it's always had an ongoing issue with oil outages, but we're seeing a bit of an increased activity in militant attacks," Pervan said. "They'll keep a high floor on the price."

Also, union officials at the Grangemouth refinery in Scotland have said further industrial actions are possible if owner Ineos Group Ltd. doesn't back down in the dispute over pensions.

Mark Killick, spokesman for Ineos, also said restoring operations to the refinery could take as long as a month if there were problems reintroducing heat and pressure into the pipes.

In other Nymex trading, heating oil futures fell 0.57 cent to $3.2931 a gallon while gasoline prices lost 3 cents to $3.007 a gallon. Natural gas futures fell 19.9 cents to $11.130 per 1,000 cubic feet.

ExxonMobil meets Nigeria strikers

LAGOS, Nigeria -

Representatives of ExxonMobil Corp. met Monday with striking workers who have shut down oil production from the company's operations Nigeria, officials said.

Company spokesman Adeyemi Fakayejo said the negotiations were aimed at ending the walkout by white collar workers seeking better pay and benefits.

"The meetings are continuing," he said.

The strike began late last week, and the company said the stoppage had affected oil output. Fakayejo said Monday that he couldn't speculate on how much production the company had lost in Nigeria, Africa's biggest producer. ExxonMobil (nyse: XOM - news - people ) is the country's second-largest operator.

Separately, a militant group behind a group of pipeline bombings claimed that its latest attack had caused Royal Dutch Shell PLC (nyse: RDSA - news - people )'s Nigerian joint venture losses of about 350,000 barrels per day. Shell spokesman Precious Okolobo could not confirm the militants' claim, and it could not be independently verified. The militants cited an inside source for the information.

Okolobo said Shell doesn't provide daily production figures. He said the company was mobilizing clean-up and recovery efforts for spilled oil after the attacks.

Shell, which is Nigeria's largest oil company, said an earlier attack had cut about 169,000 barrels per day of crude.

Nigeria, Africa's biggest oil producer, is pumping crude at rates that are significantly below its capacity of 2.5 million barrels per day after militant attacks that began in 2006. The shortfall is adding pressure to oil markets that are reaching never before seen heights.

Oil Rises to Record on U.K. Pipeline Shutdown, Nigeria Attack

April 28 (Bloomberg) -- Crude oil rose to a record after BP Plc shut a North Sea pipeline and gunmen attacked a police station in Bonny Island, the site of one of Nigeria's largest oil and gas export terminals.

BP closed the Forties Pipeline System, carrying 40 percent of the U.K.'s oil output, after a strike at the Grangemouth refinery cut power supplies to the network that delivers 700,000 barrels daily. Five police were killed and guns and ammunition seized in yesterday's attack in the Niger Delta where output has already been halved by strikes and attacks on pipelines.

``The production affected at the moment is pretty substantial,'' said David Moore, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. ``It all counts nowadays. The price would suggest the market is very tight.''

Crude oil for June delivery rose as much as $1.41, or 1.2 percent, to $119.93 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since the futures began trading in 1983. It was at $119.41 at 8:56 a.m. in Singapore.

The contract gained 2.1 percent to $118.52 a barrel on April 25 when the refinery strike and pipeline closure were announced. Refinery production will resume tomorrow morning local time. Units crucial to restart flows on the Forties pipeline will have priority, Richard Longden, spokesman for operator Ineos Group Holdings Plc, said yesterday.

Hedge Funds

Brent crude for June settlement rose $1, or 0.9 percent, to $117.34 a barrel London's ICE Futures Europe exchange and was trading at $117.30 a barrel at 8:55 a.m. in Singapore. It reached a record $117.56 on April 25.

New York oil futures are 79 percent higher than a year ago, with almost a quarter of that gain booked this month as the falling dollar and declining U.S. gasoline stockpiles spurred fund managers to invest in fuel and crude oil.

Hedge fund managers and other large speculators increased bets on rising oil prices a third time in the week ended April 22, according to U.S. Commodity Futures Trading Commission data.

Oil grades from the North Sea and Nigeria, Africa's biggest producer, are low in sulfur and favored by refiners. Nigeria is losing about 50 percent of its output after staff at Exxon Mobil Corp.'s operations went on strike April 24 and militants attacked a Royal Dutch Shell Plc pipeline later the same day.

Nigeria pumped 1.96 million barrels a day in March, according to Bloomberg estimates. Recent attacks on Shell-run pipelines, including the latest one, are cutting oil flows by about 140,000 barrels a day, the country's oil minister H. Odein Ajumogobia said April 25. The Exxon Mobil strike is halting about 765,000 barrels a day, according to union estimates.

Risks

Production losses in the North Sea will dominate the oil market this week, and ``there's a risk of further problems still ahead'' in Nigeria, Commonwealth Bank's Moore said.

Oil prices are likely to fall to ``more realistic levels'' once the Forties pipeline has re-opened, said Ben Barber, a broker at Bell Commodities Ltd. in Melbourne. U.S. stockpiles and the dollar are rising and there is a risk prices will fall this week if the Federal Reserve signals an end to recent interest rate cuts.

``Oil is quite susceptible,'' he said.

The Federal Reserve will probably cut its target lending rate by a quarter-point to 2 percent on April 30, according to futures traded on the Chicago Board of Trade, the smallest reduction in four months.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

Crude Oil Trades Above $113 as Investors Turn to Commodities

By Mark Shenk

April 16 (Bloomberg) -- Crude oil was little changed above $113 a barrel in New York after touching a record yesterday as investors purchased commodities because their returns have outpaced stocks, bonds and other financial instruments.

Oil climbed to $114.08 a barrel yesterday, the highest since futures began trading in 1983. Rising global demand for raw materials and a weakening dollar have led to record prices this year for commodities including corn, rice and gold. China said yesterday diesel imports surged 49 percent in March.

``Developing countries are still growing, which is boosting demand for metals, grains and energy,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. ``It makes sense for investors and hedge funds to invest in these commodities with the weakness of other markets.''

Crude oil for May delivery fell 26 cents to $113.53 a barrel at 9:09 a.m. Sydney time in after-hours electronic trading on the New York Mercantile Exchange. Oil closed at a record $113.79 a barrel yesterday.

Gasoline for May delivery yesterday climbed 5.92 cents, or 2.1 percent, to settle at a record $2.881 a gallon in New York. Futures earlier touched $2.89, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.3 cents to a record $3.3386 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site.

U.S. Inventories

An Energy Department report today is forecast to show that U.S. gasoline inventories dropped 1.8 million barrels last week, according to the median of 16 responses in a Bloomberg News survey. Crude-oil supplies advanced 1.8 million barrels, the survey showed.

``This is where the funds want to be,'' said Daniel Flynn, a broker with Alaron Trading Corp. in Chicago. ``Rate cuts and a weak stock market make commodities very attractive.''

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 0.9 percent to 1502.886 yesterday. It's up 35 percent from a year ago.

Oil in New York surged 79 percent over the past year as the Standard & Poor's 500 Index dropped 8.5 percent and the Dow Jones Industrial Average declined 2.3 percent.

``It doesn't look like there's anything to get in the way of the oil market,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``As long as the dollar goes lower, more money will go into commodities.''

Energy Stocks

Exxon Mobil Corp. and Chevron Corp. led energy shares to the highest level since January because of rising oil and gasoline prices. Exxon, the biggest U.S. oil company, climbed $1.10 to $90.80. Chevron, the country's second biggest, added 87 cents to $90.17.

The Organization of Petroleum Exporting Countries left its forecast for 2008 oil demand at 86.97 million barrels a day, a 1.2 million barrel-a-day gain over 2007, according to the group's monthly demand report yesterday. OPEC's 13 members produce more than 40 percent of the world's oil.

China, the world's second-largest energy consumer, increased diesel imports as state refiners China Petroleum & Chemical Corp. and PetroChina Co. bought more to ensure supplies for the spring planting season.

Chinese oil demand this year will rise 4.7 percent to 7.9 million barrels a day, the International Energy Agency said in a report on April 11. Demand in the U.S., the world's biggest- energy consumer, will contract 2 percent to 20.38 million barrels a day this year.

No Plans

OPEC has no plans to review output levels before a scheduled meeting in September, though ministers will have an opportunity to discuss the oil market with consuming nations at an International Energy Forum in Rome scheduled for April 20-22.

``We are not producing enough oil,'' U.K. Prime Minister Gordon Brown said yesterday on Sky News in London. ``We can take collective action to persuade OPEC and others to get the oil price down.''

Brent crude for May settlement rose $1.47, or 1.3 percent, to $111.31 a barrel on London's ICE Futures Europe exchange yesterday, a record close. The contract touched $112.08 a barrel, the highest intraday price since trading began in 1988.

Petroleos Mexicanos, the third-largest supplier of crude oil to the U.S., reopened three of its oil-export terminals on the Gulf of Mexico after closing them April 13 because of heavy winds and rain.

Pajaritos, Cayo Arcas

The terminals at the ports of Pajaritos and Cayo Arcas opened yesterday morning, said Martha Avelar, a spokeswoman for Mexico City-based Pemex, as the company is known. The terminal at the port of Dos Bocas reopened yesterday afternoon. The Pacific port of Salina Cruz is still closed, Avelar said.

U.S. supplies of distillate fuels, a category that includes heating oil and diesel, fell 1.65 million barrels last week, the Bloomberg News analyst survey showed.

Heating oil for May delivery rose 7.1 cents, or 2.2 percent, to settle at a record $3.2739 a gallon in New York yesterday. Futures touched an intraday record of $3.3204 a gallon on April 10.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Exxon Wins 2 New Licenses From Ireland

IRVING, Texas -

Oil company Exxon Mobil Corp. said Friday that a subsidiary has received two additional licenses from the Irish government for exploration in the Porcupine Basin of the Irish Sea.

The new awards bring the company's total interest in the basin to 18 exploration blocks plus an option for an additional 15 blocks.

The licenses are located in water with depths exceeding 6,500 feet and cover an area of 760,000 acres, the company said.

ExxonMobil (nyse: XOM - news - people ) Exploration and Production Ireland Ltd. has an 80 percent interest in the two new license areas. Providence Resources PLC and Sosina Exploration Ltd. hold the remaining interest.

Exxon Mobil shares fell 51 cents to $84 in premarket trading after closing at $84.51 on Thursday

Russia Cuts Gas to Ukraine

MOSCOW -

Western Europe is watching warily as Russia and Ukraine are locked in a natural gas dispute that has reduced the supply to Ukraine by at least half since the beginning of the week.

After Russia's state-controlled natural gas monopoly announced the second supply cut in two days Tuesday, Ukraine's natural gas company said there are no immediate plans to divert Europe-bound gas to Ukrainian customers, but held out the possibility it could do so if reserves run low. Much of the Russian gas consumed in Europe comes in pipelines crossing Ukraine.

The Russian monopoly, OAO Gazprom, is demanding Ukraine sign documents resolving a $600 million debt dispute and enabling further gas deliveries. On Monday, it cut shipments by 25 percent.

Gazprom spokesman Sergei Kupriyanov announced another 25 percent cut Tuesday evening and held out the possibility of more.

The European Union "looks to the parties to make every effort to find a rapid and durable solution to their disagreement. In addition, we look to both parties to ensure that gas supplies to the EU remain unaffected," EU Energy Commissioner Andris Piebalgs said in a statement.

A spokesman for Naftogaz, Ukraine's natural gas company, said earlier Tuesday that the company could begin diverting transit gas if a second cut were imposed. But after Kupriyanov's announcement, another spokesman said such a move was not in the immediate offing because of warm weather and substantial reserves.

"We will do that if our energy security is threatened. At the moment it is not," Valentyn Zemlyansky told The Associated Press in Kiev.

Siphoning off Europe-bound gas would be a risky move for Ukraine, whose government is seeking closer ties with the West while trying to move out of Moscow's sphere of influence.

Gazprom portrays the cutoffs as a straightforward commercial dispute, but it has considerable political resonance.

Gazprom's chairman is Russian President-elect Dmitry Medvedev, and critics accuse the Kremlin of using Gazprom as an instrument of pressure. Russia has watched with irritation as Ukrainian President Viktor Yushchenko pushes for membership in NATO and the EU.

In a telephone conversation with Yushchenko on Tuesday, Medvedev urged Kiev to pay the debt, Medvedev's office said.

Medvedev told Yushchenko that Russia "expects an intensification of Kiev's efforts for the swiftest resolution to the problem of debt for gas that has been delivered," Medvedev's office said.

"We have little reliable information on who owes what to whom. It is thus unclear whether this is a commercial dispute or something more," said Steven Pifer, a former U.S. ambassador to Ukraine who now is an analyst at the Center for Strategic and International Studies.

Only about one-quarter of the gas imported by Ukraine is of Russian origin; the rest comes from Turkmenistan and Kazakhstan in pipelines controlled by Gazprom. Naftogaz said that by going ahead with the threatened reduction, Gazprom would be cutting the Central Asian gas as well as Russian-origin gas - a move that "grossly violates technical agreements between the two companies."

Gazprom last month threatened to cut supplies to Ukraine over a $1.5 billion debt dispute, timed to coincide with Yushchenko's visit to Moscow. That cutoff was avoided by a last-minute agreement between Yushchenko and President Vladimir Putin.

But documents formalizing that agreement have not been signed by Ukraine's natural gas company, and Gazprom says Ukraine still owes $600 million for gas delivered this year.

Zemlyansky said the current dispute centered on the controversial middlemen companies that are used in the gas trade. He did not elaborate.

Critics say the laborious arrangement is essentially a mechanism for siphoning money into private pockets, and Ukrainian Prime Minister Yulia Tymoshenko has called for direct dealings with Gazprom.

Both the Central Asian gas and the Russian-origin gas that Ukraine imports is purchased from RosUkrEnergo, an intermediary company half-owned by Gazprom and half by two Ukrainian businessmen. The gas in turn is sold to UkrGazEnergo - jointly owned by Naftogaz and RosUkrEnergo - which then supplies Naftogaz.

The agreement reached last month by Putin and Yushchenko foresaw the elimination of the intermediaries, but Gazprom President Alexei Miller later said two other middlemen operations would be created, each to be half-owned by Gazprom and Naftogaz. Tymoshenko has criticized the agreement.

PetroChina Eyeing Singapore As Refining Base

HONG KONG -

China's largest oil firm, PetroChina, is reportedly planning to build a multibillion-dollar refinery in Singapore, seeking an overseas production base to meet its home country's rising energy demand.

PetroChina (nyse: PTR - news - people ) is shooting for a world-class refinery, with a capacity of at least 400,000 to 500,000 barrels per day, a scale comparable to Exxon Mobil (nyse: XOM - news - people )'s 605,000 bpd refinery on Singapore’s Jurong Island and Shell (nyse: RDSA - news - people )'s 500,000 bpd plant on Pulau Bukom, another small island just off Singapore. "It is currently doing a feasibility study and doing due diligence on this ... and so far the feedback has been positive," The Business Times in Singapore reported Tuesday, citing an unnamed source.

The project may cost PetroChina in excess of $10 billion, according to The Business Times. Its forecast made reference to an earlier estimate by Singapore Petroleum Co. CEO Koh Ban Seng that it would $5 billion to build a moderately complex 200,000 bpd refinery in the country and then factored in the island state’s current high engineering, procurement and construction costs.

PetroChina's refinery plan will be welcome news to the Economic Development Board of Singapore, which has announced several initiatives in the past year favoring refinery construction. The country aims to preserve its status as the world's No. 3 oil trading hub after New York and London.

A refinery in Singapore would enable PetroChina to increase its oil imports over the medium term to satisfy China's exploding energy demand. The Chinese media reported Tuesday that the oil giant is planning to import 300,000 tons of diesel oil this month, 50% more than it did in February, to meet higher oil consumption as the huge agricultural sector gears up for planting in March.

To ensure sufficient oil supply, Beijing has recently been reducing import tariffs on diesel oil, to 1% at the beginning of the year from 6% in November 2007.

Besides Singapore, PetroChina has targeted new production sites within China's borders. The company is considering a refinery in the northeastern province of Liaoning with a capacity of 10 million metric tons a year, equivalent to around 200,000 barrels a day, the state-controlled China Daily said Tuesday, citing an unnamed official.

Exxon Mobil to Lead $1.3B Alaska Project

ANCHORAGE, Alaska -

Exxon Mobil Corp. said late Tuesday it will lead a $1.3 billion project to drill for hydrocarbons in the Point Thomson field on the Alaska North Slope.

The Irving, Texas-based company, the largest U.S. oil producer, said drilling will begin during the 2008-2009 winter season, with initial production slated for the end of 2014. Exxon Mobil (nyse: XOM - news - people ) said it has submitted its plan to the Alaska Department of Natural Resources.

Other Point Thomson Unit (nyse: UNT - news - people ) owners include BP (nyse: BP - news - people ) Exploration (Alaska) Inc., Chevron (nyse: CVX - news - people ) USA Inc. and ConocoPhillips (nyse: COP - news - people ) Alaska Inc.

Exxon Mobil said about 200 million cubic feet of natural gas per day would be produced initially. About 10,000 barrels per day of liquid condensate will then be separated from the gas and shipped through new and existing oil pipelines, while the remainder will be pumped back into the reservoir to maintain pressure.

Exxon Mobil currently produces about 140,000 barrels of oil per day in Alaska.

Exxon Mobil shares fell 71 cents to $86.30 in premarket trading after closing at $87.01 on Tuesday

Oil Jumps on Falling Dollar, Refinery

NEW YORK -

Oil futures shot higher Tuesday, nearing $99 at times as investors bet that crude prices will keep rising despite evidence of plentiful supplies and falling demand. At the pump, gas prices rose further above $3 a gallon.

There was no single driver behind oil's sharp price jump; investors seized on an explosion at a 67,000 barrel per day refinery in Texas, the falling dollar, the possibility that OPEC may cut production next month, and continuing tensions between the U.S. and Venezuela.

Gasoline and heating oil prices appeared to be leading the advance, rising faster in percentage terms than oil due to the explosion Monday at Alon USA's Big Spring, Texas, refinery, which could be shuttered for weeks.

"The refinery fire in Texas is making people a little concerned," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Amherst, Mass.

Light, sweet crude for March delivery rose $2.61 to $98.11 a barrel on the New York Mercantile Exchange after rising as much as $3.28 a barrel earlier. March gasoline jumped 9.14 cents to $2.5852 a gallon, and March heating oil rose 7.68 cents to $2.7237 a gallon.

The dollar fell Tuesday, giving investors another reason to buy oil. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

For the moment, investors appear to have put aside concerns about the economy that have sent oil prices down into the mid-$80 range twice since crude peaked above $100 last month. Traders are instead focused on the Organization of Petroleum Exporting Countries, which will meet early next month to map out production plans, and Venezuela, where President Hugo Chavez made conflicting statements this weekend about the country's legal dispute with Exxon Mobil Corp.

OPEC could move to cut production in the second quarter, typically a period of low demand, though many analysts feel that's unlikely. In Venezuela, Chavez said he was not serious about an earlier threat to cut oil sales to the U.S., but also threatened to sue Exxon Mobil. The world's largest oil company is fighting Venezuela's nationalization of an oil project, and recently convinved several courts to freeze $12 billion in Venezuelan oil assets.

None of the news is enough to justify a nearly $3 a barrel jump in the price of crude, said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm. Echoing other analysts, Cordier argued that the oil market is in the process of "decoupling" from oil's supply and demand fundamentals. He said investors drawn by the falling dollar and momentum are pushing oil prices sharply higher despite reports last week from the Energy Department, OPEC and the International Energy Agency which all cut oil demand growth predictions for this year.

"Everyone concurs that we've got smaller demand coming in the U.S.," Cordier said.

Retail gas prices, meanwhile, jumped 1.8 cents to a national average price of $3.032 a gallon Tuesday, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, are following oil prices higher. The Energy Department expects gas prices to peak near $3.40 a gallon this spring.

Other energy futures also rose Tuesday. March natural gas jumped 28 cents to $8.94 per 1,000 cubic feet. Analysts said prices were supported by forecasts for cooler weather, but that futures were also following oil prices higher.

Oil Is Steady After Talk of OPEC Cuts

BANGKOK, Thailand -

Oil price were steady Monday in Asia, rising slightly after further hints that OPEC may cut production if global supplies continue to rise amid forecasts for slower growth in demand.

The Organization of Petroleum Exporting Countries has trimmed its demand forecasts for this year by 100,000 barrels a day, but it has also hinted it may cut production if global supplies of crude continue to rise, according to Dow Jones Newswires.

Several reports in recent days, though, have suggested that global economic conditions may not be deteriorating as quickly as feared. The U.S. Federal Reserve said Friday that industrial production in the world's largest economy rose last month in line with expectations. On the other hand, the Energy Department, the International Energy (otcbb: IENI.OB - news - people ) Agency and now OPEC have all cut demand forecasts.

Light, sweet crude for March delivery rose 23 cents to $95.73 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore.

The Nymex crude contract rose 4 cents Friday to settle at $95.50 a barrel after alternating frequently between positive and negative territory. Oil prices have risen more than $8 in little more than a week.

On Sunday, Venezuelan President Hugo Chavez soothed American motorists, saying that Venezuela is not preparing to cut off oil shipments to the United States.

The socialist leader rattled oil markets when he threatened a week ago to halt shipments to the United States in retaliation for Exxon Mobil Corp. (nyse: XOM - news - people )'s success in convincing courts in the U.S. and Europe to freeze Venezuelan assets.

"We don't have plans to stop sending oil to the United States," Chavez said Sunday during a visit to heavy-oil projects in Venezuela's petroleum-rich Orinoco River basin that were nationalized last year.

But he added that Venezuela could cut off supplies to the United States if Washington "attacks Venezuela or tries to harm us." Chavez has repeatedly warned against a possible U.S. invasion to seize control of Venezuela's immense oil reserves. U.S. officials have denied any such plan exists.

The United States relies on Venezuela for about 10 percent of its oil imports.

Chavez's administration is locked in a legal battle with Irving, Texas-based Exxon Mobil over compensation for the nationalization of one of four heavy-oil projects in the Orinoco River basin.

Exxon Mobil, the world's largest publicly traded oil company, is seeking to freeze billions of dollars in Venezuelan assets in the United States and Europe to guarantee a payoff if it wins a decision by an international arbitration panel.

Last month, a British court injunction ordered the temporary freezing of up to $12 billion in assets of state-run Petroleos de Venezuela SA, or PDVSA.

Brent crude for April delivery rose 26 cents to $94.89 a barrel on the ICE Futures exchange in London.

Heating oil futures rose 0.81 cent to $2.655 a gallon while gasoline prices gained 0.59 cent to $2.4997 a gallon. Natural gas futures rose 15.1 cents to $8.811 per 1,000 cubic feet.

Chavez: No Plans to Cut US Oil Exports

CARACAS, Venezuela -

President Hugo Chavez sent a soothing message to American motorists on Sunday, saying that Venezuela is not preparing to cut off oil shipments to the United States.

The socialist leader rattled oil markets last Sunday when he threatened to halt shipments to the United States in retaliation for Exxon Mobil Corp. (nyse: XOM - news - people )'s success in convincing courts in the U.S. and Europe to freeze Venezuelan assets.

"We don't have plans to stop sending oil to the United States," said the socialist leader during a visit to heavy-oil projects in Venezuela's petroleum-rich Orinoco River basin that were nationalized last year.

But if the United States "attacks Venezuela or tries to harm us, we will have to make the decision not to send a single drop of our oil to the United States," he added.

U.S. officials have denied planning to attack Venezuela.

The administration of Chavez - a close ally of Cuban leader Fidel Castro - is locked in a legal battle with Irving, Texas-based company over compensation for nationalization of one of four heavy-oil projects in the Orinoco River basin.

Exxon Mobil - the world's largest publicly traded oil company - is seeking to freeze billions of dollars in Venezuelan assets in the United States and Europe to guarantee a payoff in the event it wins a decision by an international arbitration panel.

The United States relies on Venezuela for about 10 percent of its oil imports.

Energy Sector Roundup: Crude Inches Up

NEW YORK -

Following is a summary of top stories in the energy sector Friday afternoon.

Oil Hangs On to a Gain

Oil futures settled a little higher, giving up larger earlier gains as traders sold to book profits from crude's recent 10 percent price rally.

Light, sweet crude for March delivery added 4 cents to settle at $95.50 on the New York Mercantile Exchange but alternated frequently between positive and negative territory. Oil prices have risen more than $8 in little more than a week.

March gasoline futures rose 1.77 cents to settle at $2.4938 a gallon on the Nymex, while March heating oil fell 1.97 cents to $2.6469 a gallon. March natural gas lost 11.2 cents to $8.66 per 1,000 cubic feet.

OPEC Revises Outlook for Global Oil Demand

In its monthly oil market report, the Organization of Petroleum Exporting Countries trimmed its 2008 outlook for global oil demand growth and said more cuts in its forecast could lie ahead.

OPEC said slowing economic growth, softer demand for petroleum products and rising crude and gasoline inventories in the U.S. and Europe "warrant close monitoring in the months ahead to ensure a timely response to changing conditions."

OPEC said current production from its member nations is about 32 million barrels a day, which could pad global oil inventories in coming quarters.

The report noted U.S. oil and gasoline stocks are now already above the five-year average following a steady decline in December.

OPEC cut its outlook for 2008 global oil demand growth by 100,000 barrels a day to 1.2 million barrels a day - still an increase of 1.4 percent over last year.

Lehman Sees Refiners Entering a "Dark Age"

Refiners' shares tumbled after a Lehman Brothers (nyse: LEH - news - people ) analyst cut his rating on the sector, suggesting the industry has entered a "dark age" of shrinking margins that could last through the end of the decade.

Analyst Paul Cheng cut his rating on the sector to "Negative" from "Neutral."

"We forecast the sector will resume its downward spiral by early summer and will exit the year below its recent lows," he wrote in a client note.

Cheng noted that U.S. refining margins have dropped by 74 percent since last May. But rather than signal a seasonal pullback, the drop-off seems to herald "a new multiyear down cycle," the analyst said.

The problem, as Cheng sees it, is that demand will not keep up with growing supplies of refined products such as gasoline. "Unless the global demand growth rate exceeds 2 percent per annum for the next several years, we expect supply will outpace consumption growth, which in turn should result in a declining margin environment."

In afternoon trading, shares of Valero Energy Corp. (nyse: VLO - news - people ), the largest U.S. refiner, sank $1.57, or 2.7 percent, to $57.19. Tesoro Corp. (nyse: TSO - news - people ) dropped $1.33, or 3.5 percent, to $36.41, and Sunoco (nyse: SUN - news - people ) fell $1.09 to $60.52.

Transocean (nyse: RIG - news - people ) Ultradeep Rig Hired for Indonesia Project

Transocean Inc. received a 689-day contract for its ultra-deepwater drillship GSF Explorer from a group headed by a Marathon Oil Corp. subsidiary. It will drill exploration wells off Indonesia and should bring Transocean revenue of about $351 million under the deal.

The GSF Explorer is one of 18 ultra-deepwater floater rigs in the Transocean fleet. It can operate in up to 7,800 feet of water.

More Rigs Operating in U.S. and Canada

The number of rigs actively exploring for oil and natural gas in the U.S. this week increased by 18 from the previous week to 1,773. That is 27 more operating than a year ago.

Of the rigs running nationwide, 1,428 explore for natural gas and 339 for oil, according to Baker Hughes Inc. (nyse: BHI - news - people ) Six are listed as "miscellaneous." There are 55 offshore rigs operating.

Among the top petroleum-producing states, Oklahoma added five rigs, Colorado and Louisiana four, Texas three, Alaska two and Wyoming picked up one. New Mexico lost two rigs and California one.

In Canada 632 rigs were in operation, up 34 from the week before.

Eni Gets Compensation Deal with Venezuela

Italian energy company Eni SpA reached a deal with Venezuela for compensation in the 2006 seizure of its Dacion oil field, according to Italian news agencies.

"We obtained compensation at book value," Chief Executive Paolo Scaroni told a news conference.

The Dacion field has an estimated value of $839 million, but Scaroni did not say how much Eni received from the Chavez government.

Exxon Mobil (nyse: XOM - news - people ) challenged state-run oil company PdVSA over compensation for one of its four heavy oil projects in the Orinoco River basin, obtaining court orders that froze up to $12 billion of PdVSA assets. The Venezuelan company retaliated by cutting off crude shipments to Exxon Mobil, a move most analysts think will have little impact on Exxon Mobil.

Exxon Mobil Reserves Replacement Rate Over 100 Percent

Exxon Mobil Corp. says it added the equivalent of 1.6 billion barrels of oil to its known reserves last year, more than replacing the amount it produced.

The company said the added reserves, which drew on drilling programs in North America, the Middle East, Europe and West Africa, totaled 101 percent of its 2007 output.

The total would have included half a billion more barrels were it not for abandoned operations in Venezuela and other asset sales. Exxon Mobil controlled the equivalent of 72 billion barrels of oil at the end of the year.

Eni-Venezuela Deal Reported

ROME -

Italian energy company Eni SpA on Friday reached a deal with Venezuela for compensation for the seizure of its Dacion oil field, Italian news agencies reported, quoting Eni's CEO.

"A few minutes ago we closed a deal with the Venezuelan government on the Dacion oil field, for which we obtained compensation at book value," Eni chief executive Paolo Scaroni was quoted as saying at a news conference near Milan. Dacion, worth an estimated $839 million, was seized in April 2006 by the government of Venezuelan President Hugo Chavez.

Scaroni did not cite the book value.

The ANSA and Apcom news agencies also quoted Scaroni as saying that negotiations aimed at Eni's entering into Venezuela's Orinoco Basin have begun. Last year, Exxon Mobil (nyse: XOM - news - people ) walked away from its heavy oil upgrading operations in the Orinoco River basin after Chavez's government changed the terms of the contract.

Exxon Mobil Corp. is challenging Venezuela's state-run oil company over compensation for the nationalization of one of four heavy oil projects in the Orinoco basin, one of the world's richest oil deposits.

Earlier in the day, Eni, which is 30 percent state-controlled, said preliminary fourth-quarter net profit almost doubled due to its key upstream division and because of stronger crude prices and higher volumes sold following its acquisition spree.

The company said that net profit in the last quarter of 2007 climbed to euro3 billion (nearly US$4.5 billion) compared with euro1.52 billion in the same period a year earlier.

Full-year net profit was up by 8.6 percent, to some euro10 billion (US$15 billion) from euro9.22 billion for 2006.

Eni also said that oil and natural gas production was up by 1.1 percent in the fourth quarter of 2007, but down by 1.9 percent over the entire year.

Eni's U.S.-traded shares were up 84 cents, or 1.3 percent, to $66.05 in late trading Friday on the New York Stock Exchange.

Oil Swings Widely on Conflicting Data

NEW YORK -

Oil futures inched higher Friday, giving up much larger earlier gains, as traders sold to book profits from crude's recent 10 percent price rally.

Volatility was the day's watchword, as prices alternated on mixed news from OPEC and competing views about the economy and demand for oil.

The Organization of Petroleum Exporting Countries trimmed its demand forecasts for this year by 100,000 barrels a day but hinted that it may cut production if global supplies of crude continue to rise, according to Dow Jones Newswires.

"It's always on the mind of traders what OPEC is going to do," said Addison Armstrong, director of exchange traded markets at TFS Energy Futures LLC in Stamford, Conn.

Earlier in the week, prices rose on Venezuelan President Hugo Chavez's threat to cut off oil shipments to the United States in retaliation for Exxon Mobil Corp. (nyse: XOM - news - people )'s success in convincing courts in the U.S. and Europe to freeze Venezuelan assets. Exxon has taken Venezuela to court over last year's nationalization of an oil field.

Several reports in recent days have suggested that economic conditions may not be deteriorating as quickly as feared. On Friday, the Federal Reserve said industrial production rose last month in line with analyst expectations. On the other hand, the Energy Department, the International Energy (otcbb: IENI.OB - news - people ) Agency and now OPEC have all cut demand growth forecasts for this year. At the same time, domestic oil supplies have risen for several weeks.

"I think we're just finally coming back down to earth," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Light, sweet crude for March delivery rose 4 cents to settle at $95.50 on the New York Mercantile Exchange after alternating frequently between positive and negative territory. Oil prices have risen more than $8 in little more than a week.

In recent days, many analysts have questioned oil's price strength in the face of falling demand.

"It makes no sense," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., who suggested speculators may be behind the recent rise. "I think it's financial and it's speculative."

Markets that rise quickly on speculative money often fall even faster, analysts say.

At the pump, meanwhile, gas prices rose 0.5 cent overnight to a national average of $2.984 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, have drifted higher in recent days, following oil's recent rally.

Other energy futures were mixed Friday. March gasoline futures rose 1.77 cents to settle at $2.4938 a gallon on the Nymex, while March heating oil fell 1.97 cents to $2.6469 a gallon. March natural gas fell 11.2 cents to $8.66 per 1,000 cubic feet.