Concern mounts as oil price nears $120

International concern mounted as world oil prices edged closer to $120 a barrel Wednesday and the world’s top producer called for calm.

Analysts said a weakening United States dollar, supply worries in Nigeria and the reluctance of the Organisation of the Petroleum Exporting Countries (Opec) to increase output have all contributed to the price surge.

In afternoon trade, New York’s main oil futures contract, light sweet crude for delivery in June, rose nine cents to $118,16 per barrel.

The May contract expired on Tuesday after closing at a record $119,37 per barrel at the New York Mercantile Exchange, where it earlier hit an all-time intraday peak of $119,90.

Global supply jitters have seen oil contracts traded in New York spike by more than $57 in the past year. Price records in New York and London have been broken almost daily over the past week.

Brent North Sea crude for June delivery rose 15 cents to $116,10 a barrel, after settling at an all-time high of $115,95 on Tuesday in London.

The contract earlier touched a record $116,75 in intraday activity.

“Market sentiment is bullish in the immediate term,” said Victor Shum, senior principal of Purvin and Gertz energy consultancy in Singapore.

“The weak US dollar, real supply disruption in Nigeria … are pushing prices higher”.

But Shum said there is increasing concern that the rally in oil pricing “has been too much and too fast”.

Ministers from 74 countries attending the International Energy Forum in Rome on Tuesday said oil prices should be at levels acceptable to producers and consumers, “to ensure global economic growth, particularly in developing countries”.

United States President George Bush expressed concern at the impact of high price levels on consumers.

Saudi Arabia’s Petroleum Minister, Ali al-Naimi, on Tuesday called for calm in the face of runaway oil prices. He said the world is not running out of oil.

The root of the problem was primarily due to “limited capacity along the entire supply chain … at its heart, this is not an energy resource issue; it is primarily an investment issue”, he said at the Rome forum.

Saudi Arabia is the biggest producer in Opec, which on Tuesday said that it plans to increase its production capacity by five million barrels per day (bpd) by 2012.

The cartel’s secretary general, Abdalla Salem El-Badri, said Opec aimed to boost production capacity by nine million bpd by 2020. Current Opec output stands at about 32-million bpd.

Shum said Opec’s move would have little impact in the near term.

“Even though Opec has promised to increase production capacity, the long-term supply increase does not resolve the main factors that are underpinning prices now,” he said.

A weakening US dollar has spurred oil demand because dollar-priced oil becomes cheaper for buyers holding stronger foreign currencies.

The euro surged to a record 1,6002 dollars Tuesday on renewed jitters about the US economy.

“The weak dollar is a key thing that people are looking at,” said Jason Feer, vice-president and general manager of energy market analysts Argus Media in Singapore.

Global supply worries were stoked after Anglo-Dutch oil group Royal Dutch Shell reported an output loss of 169 000 bpd from sabotage of its key pipelines in southern Nigeria.

Shell said on Monday that it might not be able to honour oil contracts for April and May after the attacks. — AFP

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