Crude Ends Above $61 a Barrel

Political violence in Nigeria keeps traders buying.
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Updated from 10:31 a.m. EST

A wave of attacks against Nigerian oil installations over the weekend sent oil prices soaring Tuesday.

Crude climbed $1.22, or 2%, to $61.10 a barrel on concerns that the attacks would cut already tight oil supplies. There was no trading on the Nymex on Monday due to the Presidents Day holiday.

"The constant political upheavals in oil-producing countries continue to overshadow the current state of abundant supply," said Phil Flynn, an energy analyst at Alaron Trading in Chicago. "The line between oversupply and under-supply has never been thinner. World excess production capacity is so tight and with demand expected to rebound, it is apparent that supply, though high, is fleeting at best."

Oil pulled up most of the energy complex, with heating oil adding less than 1 cent, or 0.5%, to $1.66 a gallon and natural gas jumping 54 cents, or 7%, to $7.73 per million British thermal units.

Unleaded gasoline fell 2 cents, or 1.8%, to $1.47 a gallon due to a selloff in the March crack-spread contract for gasoline and speculation that supplies are sufficient to meet demand. The crack spread is the difference between the price of crude and the price of refined products, like gasoline. Gasoline inventories are 1.8% higher than a year ago.

Colder temperatures in the Northeast, the country's largest consumer of heating fuel, were also giving support to natural gas. But the increase could be short-lived as mild weather returns to the area and temperatures rebound from the 20s into the 40s and 50s later this week, according to AccuWeather, a State College, Pa., weather forecaster.

Rising oil prices lifted shares of energy companies in trading Tuesday, with

Exxon Mobil

(XOM) - Get Report

climbing 23 cents, or 0.4%, to $60.78;

BP

(BP) - Get Report

soaring 65 cents, or 1%, to $69.16, and

Chevron

(CVX) - Get Report

adding 73 cents, or 1.3%, to $57.90.

Rebels in Nigeria's southern Niger Delta kidnapped nine oil workers and blew up a pipeline, export terminal and other petroleum infrastructure over the weekend. The militants, who are demanding a share of the country's oil profits, also threatened rocket attacks against any ships transporting oil out of Nigeria.

Royal Dutch Shell

(RDS.A)

, which produces about 50% of Nigeria's oil, extended its declaration of force majeure, which legally allows a company not to meet its contracts if conditions are outside of its control. Shell had initially declared force majeure in January after rebel attacks on its pipelines and platforms.

The wave of violence has cut Nigeria's oil exports by one fifth, or 450,000 barrels. Nigeria is the fifth-largest supplier of American crude and typically exports 2.5 million barrels per day. The country has become especially important to the U.S. as it looks to reduce its dependence on Middle Eastern crude. Nigerian oil is prized because much of it has low amounts of sulfur, making it more expensive and easier to refine.

Long-time observers of Nigeria's oil industry say, though, that attacks are de rigueur for the area.

"Such actions have been commonplace for years," said Bill O'Grady, a futures analyst with AG Edwards in St. Louis. "Usually, the militancy is bought off and oil production resumes. But, this new action appears more organized, and the costs of quelling this insurgency may be higher than in the past."

Violent protests also closed down a pipeline that carries 400,000 barrels per day across Ecuador. The state-run oil company, Petroecuador, suspended exports, which amount to 144,000 barrels per day. Protestors are demanding a share of the area's oil monies for local residents.

A highly anticipated meeting between Iranian and Russian officials ended on Tuesday without any resolution. The two sides met in Moscow to discuss plans to enrich uranium in Russia on Tehran's behalf and will meet in Tehran on Thursday to continue talks. Iran claims it has restarted nuclear development activities to produce more electricity for its growing population, and not, as the West suspects, to build nuclear weapons.

The International Atomic Energy Agency referred Iran to the U.N. Security Council earlier this month for its move to restart uranium enrichment. The Security Council, which next meets March 6, will decide what actions to take against Iran, and whether they will include economic sanctions against OPEC's second largest oil producer.

Nigerian violence and an Iranian nuclear standoff have driven crude prices higher this year because they bolster fears that already tight crude supplies will be cut. Growing Asian and American economies and damaged Gulf Coast platforms, pipelines and refiners have tightened inventories and kept prices high.

Supply fears often roil the energy markets even if current inventories are high because traders worry they will eventually grow tight. There is 10.9% more crude in storage now than last year thanks to high levels of petroleum imports.

Traders will be looking toward Thursday's petroleum supply report, put out by the Energy Department every week, for insight into where oil supply and demand is headed. The report will be released one day late because the federal government was closed on Monday for Presidents Day.