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Oil Rises to One-Week High on Nigerian Strike, European Outlook

12 Jan 2012

Oil climbed to the highest level in a week on concern that a strike in Nigeria will curb supplies and as European Central Bank President Mario Draghi said there are some signs the euro-area economy is stabilizing.

Prices rose as much as 2.1 percent after Nigeria’s Nupeng union said it has started shutting platforms in Africa’s largest oil producer. Crude extended gains as the euro surged against the dollar on Draghi’s remarks and as the ECB kept its benchmark interest rate at 1 percent following two straight reductions.

“The Nigerian situation is front and center here as we know that Nigerian oil workers are capable of shutting in production,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “It was a bit of a surprise for the European Central Bank to not lower rates and that spurred oil’s inverse dollar trade.”

Crude for February delivery rose $1.28, or 1.3 percent, to $102.15 a barrel at 11:43 a.m. on the New York Mercantile Exchange after touching $102.98. The contract fell to $100.87 yesterday, the lowest close since Dec. 30. Prices have risen 11 percent in the past year.

Brent oil advanced $1.55, or 1.4 percent, to $113.79 a barrel on the London-based ICE Futures Europe exchange. Earlier, it touched $115.12, the highest price since Nov. 9.

The euro strengthened as much as 1 percent against the dollar, boosting the appeal of commodities as alternative investment to the U.S. currency, on Draghi’s comments and afterSpain sold almost twice its maximum target at a bond auction.

“With the bouncing euro and the break in the dollar, that’s going to be supportive for oil prices,” said Rich Ilczyszyn, chief market strategist and founder of in Chicago.

Nigerian Unions

Nigeria’s Nupeng oil union said it withdrew its members from fields in support of a nationwide strike to force PresidentGoodluck Jonathan to reinstate fuel subsidies. The strikes, now in their fourth day, follow production glitches that have already cut shipments. Another union, Pengassan, said it would begin shutting down the industry on Jan. 15.

Jonathan and labor leaders were set to meet at 5 p.m. local time today in the capital of Abuja in a bid to end the strike. The president and the unions are deadlocked over demands that the government reverse its decision to abolish fuel subsidies, which more than doubled the price of gasoline.

Nigeria pumped 2.2 million barrels of crude a day last month, according to Bloomberg estimates.

Iran Tension

Oil also rose as U.S. Treasury Secretary Timothy F. Geithner’s efforts to tighten economic sanctions on Iran over its nuclear program won backing from Japan a day after China rejected limiting oil imports from the country.

“It’s the fear over Nigeria and residual fear over Iran,”said Peter Beutel, president of trading advisory company in New Canaan, Connecticut.

Japanese Finance Minister Jun Azumi said today that the country, the world’s second-biggest importer of Iranian crude, may reduce purchases as part of an effort to limit Iran’s nuclear development.