Crude nears $65/bbl on Nigeria supply cut, Iran

London (Platts)--12Jan2006

Crude oil rose Thursday, nearing $65/bbl, as an explosion and kidnapping
in Nigeria cut supply and tension between Iran and the West over Tehran's
nuclear work raised worries about flows from OPEC's second-largest producer.  

     Royal Dutch Shell shut down some 220,000 b/d in Nigeria as the UK, France
and Germany were preparing for talks Thursday on Iran's move to resume nuclear
research. Britain and the US say the dispute is likely to end in Tehran's
referral to the UN Security Council, which can impose sanctions.

     "A lot of this price move is because of Iran," said Bruce Evers, an
analyst at Investec Securities in London. "Also, there is still a lot of money
coming into oil and commodities."

     February crude futures on the New York Mercantile Exchange were up 61 cts
at $64.55/bbl as of 1350 GMT, having earlier risen as high as $64.77. In
London, Brent crude was 76 cts higher at $62.93.

     Most of the world's oil producers are pumping crude at full stretch to
meet rising demand, leaving little in reserve to make up for losses and making
prices more sensitive to real or threatened supply breaks. 

     In Nigeria, Shell shut down 100,000 b/d of production after an explosion
Wednesday on a pipeline feeding the Forcados export terminal, said Aminu
Baba-Kusa, a Nigerian National Petroleum Corp official.

     Shell's Nigerian venture, the largest oil producer in Nigeria, also shut
the 120,000 b/d EA offshore oilfield after gunmen Wednesday stormed a boat
servicing the field and abducted four workers, he said. 

     IRAN CONCERN

     The Iran dispute is a concern because Iranian oil exports of 2.4-mil b/d
exceed the reserve production capacity in other countries. Saudi Arabia and
other nations could not meet the shortfall if Iran's oil stopped flowing. 

     Iran raised the stakes in its row with the West Tuesday by saying it had
removed seals at nuclear research centers. Tehran says its nuclear program is
peaceful, but the US accuses Tehran of seeking nuclear bombs.

     Officials from Europe, Russia, China and the US will hold "urgent
consultations" on the Iran nuclear crisis in London next week, Interfax
reported Thursday, quoting Russian Foreign Minister Sergei Lavrov.

     NYMEX crude has risen from about $61 at the end of December, helped by
the Iran standoff and a flow of fund money into oil and other commodities such
as metals as investors seek to beat the returns in sectors such as equities. 
     
     'UPSIDE RISK'

     Slapping UN sanctions on Iran would make it difficult for the country to
import parts to renovate its oilfields, or could lead to more calls in Iran
for a halt in oil exports to protest any such move, analysts said. 

     The Iran nuclear dispute is an important reason why crude prices, which
hit a record $70.85/bbl in New York last year, could rise in 2006, analysts at
Barclays Capital said in a report Thursday.

     "We see the path of relations with Iran as representing a major source of
upside risk for oil prices," analyst Kevin Norrish said in the report. "It is
not too difficult to construct a scenario in which prices will get back past
$70 in relatively short order."

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