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.