Oil Rises as Iraq, Nigeria Losses Drag On

Reuters Thursday April 3, 2:18 pm ET

NEW YORK (Reuters) - Oil prices on Thursday bounced back from heavy recent falls as the sustained loss of crude supply from Iraq and Nigeria threatened to cap a rebound in U.S. oil inventories.

U.S. crude futures were 52 cents up at $29.08, while benchmark Brent crude oil in London rose 33 cents to $25.54 per barrel. U.S. crude has fallen by more than $10, or 27 percent from a 12-year high hit in late February.

ADVERTISEMENTPrices have dropped by four percent this week alone, weighed down by a big jump in U.S. crude stocks as Saudi Arabia's drive to lift oil production pushed U.S. imports to record levels.

The fatter inventory cushion has yet to allay fears that supply losses from Nigeria and Iraq, both normally among the top six oil importers to the United States, will keep U.S. supplies tight for months to come.

"It is by no means clear that imports can be maintained...once the cushion of extra oil in the supply chain over the next few weeks begins to abate," said Paul Horsnell, analyst at investment bank J.P.Morgan.

Iraq's exports have been at a standstill since the early days of the U.S.-led attack. Nigeria has seen its output slashed by 40 percent by unrest in the delta region ahead of elections later in April.

The impact has yet to be felt in the United States because oil takes weeks to arrive in tankers. Nigeria's oil is particularly important to U.S. refiners in summer as it is good for making gasoline.

"We still believe that the U.S. market will have difficulty in avoiding a significant gasoline price spike this summer," Horsnell added.

OPEC (News - Websites)INCREASE

The OPEC producer cartel has eased supply concerns by pumping eight percent more than its self-imposed supply ceiling in March, a Reuters survey showed.

Key U.S. ally Saudi Arabia, home to the world's biggest oil reserves and output capacity, pumped at its highest level in 21 years. Analysts say that recent price falls may soon encourage to reverse some production increases.

Renewed signs of U.S. economic weakness, which may in turn weaken demand growth, have also helped ease supply fears.

The number of new U.S. jobless claims last week jumped to its highest in nearly a year, the government said on Thursday, offering little hope for a turnaround in a grim labor market.

The jump in jobless claims has coupled with data this week showing a pull-back in the vast services sector, contraction in manufacturing and a hefty drop in factory orders to reveal a bleak picture of the U.S. economy.

Growth in U.S. gasoline demand, which soaks up nearly 12 percent of the world's oil supply, has already ground to a halt in recent weeks as record high pump prices keep drivers off the roads.

U.S. gasoline demand over the last four weeks was 0.1 percent below last year, according to a government report on Wednesday. Demand was routinely 2-4 percent above 2002 levels at the start of this year.