Oil prices hit an all-time high near $120 a barrel Monday after a weekend refinery strike closed a pipeline system that delivers a third...
VIENNA, Austria — Oil prices hit an all-time high near $120 a barrel Monday after a weekend refinery strike closed a pipeline system that delivers a third of Britain’s North Sea oil to refineries in the U.K.
The shutdown comes amid supply outages in Nigeria that have helped to support oil against a strengthening dollar.
“We’ve got a confluence of a number of events that have really disrupted crude oil supply,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “That’s what’s driving oil to a new record even though the U.S. dollar actually strengthened a bit.”
Light, sweet crude for June delivery rose to a record $119.93 a barrel in electronic trading on the New York Mercantile Exchange. The contract eased back to $119.04 a barrel by afternoon in Europe, up 52 cents from Friday’s close of $118.52.
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BP PLC on Sunday shut down the Forties Pipeline System that carries more than 700,000 barrels of oil a day to the U.K. because of a 48-hour walkout by employees at a refinery in central Scotland.
Workers walked out of the Grangemouth refinery in a dispute with refinery owner Ineos over plans to close a pension plan to new employees. Ineos Chief Executive Tom Crotty said it could take a week for the plant to return to production once the strike ends on Tuesday. BP said its pipeline could be up and running within 24 hours.
BP’s Kinneil plant, the onshore processing center for the pipeline system, is powered by the Grangemouth site.
“With the refinery being shut down, it will affect supplies from the North Sea and that has a potentially significant impact,” said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. “That comes at the same time that there’s production disruptions from Nigeria, so the combined effect of those is the immediate factor that’s put pressure on oil prices.”
Analyst Stephen Schork also attributed the bullish market to the combination of events stoking supply concerns.
“News that BP shut-in 40 percent of the Forties Pipe compounded the latest headline out of Nigeria regarding a rebel attack near that country’s largest oil and gas export terminal on Bonny Island,” he said in his Schork Report. “Thus, all of that ‘bubble talk’ aside, the market looks stronger than ever.”
In Nigeria, the Movement for the Emancipation of the Niger Delta, or MEND, said its fighters hit an oil pipeline late Thursday, the fourth conduit the group has attacked in the past week. MEND said the pipeline belongs to a Royal Dutch Shell PLC joint venture. A Shell spokesman confirmed one of its pipelines had been hit, but provided no additional details.
Separately, workers at an ExxonMobil Corp. joint venture there cut production by an unspecified amount to demand more pay.
Demand is high for Nigeria’s light, sweet crude, which is easily refined. After years of militant attacks, however, Nigeria’s output is dropping and the country can produce only about 75 percent of its official production capacity of 2.5 million barrels per day.
This week, the oil market is also expected to closely watch the outcome of the U.S. Federal Reserve’s policy meeting on Tuesday and Wednesday.
The central bank’s policymakers will meet to decide whether to lower interest rates again and to issue an updated assessment of the U.S. economy and financial system. Most investors believe the Fed will lower rates by another quarter percentage point — and that it will also suggest it may temporarily halt its round of recent cuts.
“There are a lot of expectations that the Fed will make an announcement that they will take a pause in interest rate cuts,” Shum said. “If that’s the case, then the U.S. dollar may bottom out and that could cause some pullback in oil pricing.”
Many analysts believe the weakness of the dollar is a bigger factor than supply and demand because the soft dollar draws investors worried about inflation into commodities such as oil. It also makes commodities less expensive for buyers operating in other currencies. In other Nymex trading, heating oil futures were flat at $3.310 a gallon while gasoline prices moved up slightly to fetch $3.0568 a gallon. Natural gas futures added over 10 cents to sell at $11.072 per 1,000 cubic feet.
Brent crude futures rose 65 cents to $116.99 a barrel on the ICE Futures exchange in London.
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Associated Press writers Gillian Wong in Singapore and Jamey Keaten in Paris contributed to this report.