Thursday, May 21, 2009

Oil hits 6-month high after U.S. refinery explosion, Nigerian unrest

Crude oil prices topped the $60 US barrier for the first time since November in trading Tuesday on rumours of renewed conflict in Nigeria and the reality of a refinery explosion in Delaware.

A barrel of oil for June delivery hit a six-month peak at $60.48 in early trading. Crude value then retreated slightly to $59.90 in later trading.

A July delivery futures contract for crude stayed above the $60 mark, at $60.99.

The higher oil values had the ancillary effect of driving up Canada's stock markets more than 350 points in Tuesday's trading. Toronto's main stock exchange blasted through the 10,000 mark in the afternoon portion of the daily session.

Speculators pushed up the value of crude oil after a Sunoco refinery on the Delaware-Pennsylvania border was rocked by an explosion Monday night.

Traders immediately began guessing that the damage could lead to refining delays, a situation that would exacerbate the U.S.'s chronic shortage of crude processing capacity.

Capacity shortages drive up pump prices and give other refineries an incentive to process more of the black gold, a situation which increases the demand for crude oil.

The Marcus Hook facility, which handles 178,000 barrels of oil per day, is the 39th-largest oil refinery in the United States.

Conflict in Niger Delta

Nigeria's government denied reports that as many as 1,000 civilians were killed in weekend fighting in the oil-rich Niger Delta.

The African government is fighting area separatist groups, such as the Movement for the Emancipation of the Niger Delta (MEND), which are seeking an independent homeland for this part of Nigeria.

The Niger Delta contains the majority of Nigeria's petroleum resources.

MEND declared an "all-out" war on the government of President Umaru Yar'Adua after the national military attacked one of the group's strongholds Friday.

Historically, increased unrest in Nigeria leads to speculation that oil supplies from the fifth-largest producer within the Organization of Petroleum Exporting Countries will be cut.

Housing data still dismal

In longer term, however, U.S. housing data, which was released Tuesday and was unexpectedly bad, had some observers wondering whether the global economic recovery would be delayed.

OPEC and other oil countries are watching closely to see whether the gross domestic product in major consuming nations will turn positive, a trend not expected until the later half of the year.

In other news that could affect demand, the Obama administration Tuesday announced new standards for fuel efficiency that would see a 42 per cent increase in the distance that cars and trucks could squeeze from a litre of gasoline.