NYMEX oil ends up over $1 on Iraq

NYMEX oil ends up over $1 on Iraq

U.S. crude oil futures ended more than a dollar higher on Friday as analysts warned the death of
Iraq’s al Qaeda leader Musab al-Zarqawi on Thursday would not end threats to Iraq’s battered oil industry.

There are other militant groups that could intensify their efforts to carry out sectarian violence and continue to destabilize oil production and shipments, the analysts said.

Traders were also covering short positions ahead of the weekend as a close watch for potential tropical storms began, with the Atlantic hurricane season now under way.

News that Valero Energy’s (NYSE:VLO – news) 275,000 barrel per day refinery on the Caribbean island of Aruba was shut down after a power failure helped fuel a heating oil rally, traders said.

Gasoline bounced higher on short-covering, they added.

Crude for July delivery last traded up $1.25 at $71.60 a barrel after peaking at $71.80 in a rebound after three days of losses on the New York Mercantile Exchange.

In London, July Brent crude rose $1.49 to $70.54.

“Neither Zarqawi nor al Qaeda appear to have been major factors behind pipeline attacks in Iraq, so his death is unlikely to boost oil infrastructure security in the short term,” said Antoine Halff, analyst at Fimat in New York.

NYMEX July gasoline gained 4.78 cents at $2.15 per gallon, with July RBOB last trading at $2.305, up 2.63 cents.

July heating oil surged 6.44 cents to $2.05 a gallon.

On the Aruba refinery shutdown, a Valero spokeswoman said lost production includes 80,000 bpd of diesel and jet fuel, 30,000 bpd of naphtha, 110,000 bpd of gas oil, virtually all of which was bound for the U.S. market.

Return to planned rates may take as long as three weeks, the spokeswoman added.

“There’s some short-covering going on and with the hurricane season now on, traders don’t want to leave short ahead of the weekend,” said Tom Knight, trader at products marketer Truman Arnold in Texarcana, Texas.

“We’ve also held at support and you’re seeing some buying follow-through here,” he added.

On the weather front, the
National Hurricane Center in Miami said in its 11 a.m. EDT outlook that widespread cloudiness and showers over the northwestern Caribbean Sea and adjacent land areas are associated with an area of low pressure centered a couple hundred miles east of the Yucatan Peninsula.

The system was showing signs of organization this morning but winds were only somewhat conducive to additional development, it said.

A tropical depression could still form during the next day or two as it moves slowly northward, it added.

On Thursday, Iraq Oil Minister Hussain al-Shahristani said from Istanbul that the death of Zarqawi, Iraq’s al Qaeda leader, would help improve Iraq’s oil production, particularly in the north.

But analysts doubted that could happen soon. There are various groups thought to be behind sabotage that has kept Iraq struggling to keep pumping 2 million barrels per day, down from about 2.5 million bpd before the U.S.-led invasion in 2003.

On the same day Zarqawi was killed, sources said Muthana al-Badri, director general of Iraq’s State Company for Oil Projects (SCOP), was on his way home in the Sunni district of Adhamiya when gunmen in four cars stopped his car, abducted him — but set his driver free.

Iran, meanwhile, has kept up the guessing game on how it may resolve its nuclear dispute with the West.

On Thursday, President Mahmoud Ahmadinejad said Iran was ready to talk about “mutual concerns and solving misunderstandings in the international arena.”

But just a day before, Oil Minister Kazem Vaziri-Hamaneh said Iran could still use its oil exports as a weapon in the dispute with the West about its restarted nuclear program.

Tension over Iran’s nuclear work continued as it launched a new round of uranium enrichment this week just as world powers dangled an incentive package for it to halt what the West sees as a potential to make atomic bombs.


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