Oil Prices Continue Climb

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The commitment by Saudi Arabia to increase oil production did not prevent oil prices from continuing their upward climb. The heightened tensions in the Middle East and disruptions to the supply from Nigeria were blamed for the rise.

Yesterday, Saudi Arabia announced that it would produce more crude oil this year if the market needs it. A 300,000-barrel-a-day production increase was announced in May and another 200,000 barrels a day in July will be added, raising total daily output to 9.7 million barrels. Analysts responded by saying that the announcement had already been factored into oil prices.

"The meeting was mildly positive but it wouldn't really deliver anything that would give a heavy correction in oil,'' said Mark Pervan, a senior commodity strategist at the ANZ Bank in Melbourne, Australia.

"They pledged production increases that the market thought was base case.''
Light, sweet crude for August delivery rose $1.29 US to $136.65 a barrel in Asian electronic trading on the New York Mercantile Exchange by mid afternoon in Singapore. The contract rose $2.76 to settle at $135.36 a barrel Friday.

There was some disappointment over the Saudi announcement as the pledge fell far short of U.S. hopes for a specific increase. The concern is that oil production has not kept up with increasing demand, especially from China, India and the Middle East. But Saudi Arabia and other OPEC countries say there is no shortage of oil and blame financial speculation and the falling U.S. dollar.

"I think where the market may be a little more comforted, which could see prices drift lower in the medium term, is more clarity and scope on OPEC capacity,'' Pervan said.
"The oil summit really has not done much to temper oil pricing,'' said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

"It was a modest output increase and hardly really compensates for the disruption out of Nigeria.''
Royal Dutch Shell PLC cannot meet contractual obligations to export oil from a Nigerian oil field following a militant attack Thursday and to complicate matters Nigerian oil workers reportedly decided to strike at a Chevron Corp. facility beginning Monday.

Price relief may come from the fact that Nigeria's main militant group that it would halt attacks starting at midnight Tuesday. The Movement for the Emancipation of the Niger Delta has declared a unilateral cease-fire.

"The market will see if indeed that ceasefire holds for a bit of time,'' Shum said.

The heightened tension between Israel and Iran, after Pentagon officials said Friday a large-scale Israeli military exercise in the eastern Mediterranean early this month could have been a demonstration of Jerusalem's ability to attack Iranian nuclear facilities, were another factor that affected the price.