Oil extends gains above 70 dollars in Asia

Friday June 26, 2009

SINGAPORE: Oil extended gains above 70 dollars a barrel in Asian trade Friday as attacks on pipelines in crude producer Nigeria escalated and the US dollar wobbled from a recent rally, analysts said.

In morning trade, New York's main futures contract, light sweet crude for delivery in August, climbed 24 cents to 70.47 dollars a barrel.

Brent North Sea crude for August was up 35 cents to 70.13.

Nigerian rebels on Thursday said they carried out a pre-dawn attack against Royal Dutch Shell facilities in a warning to Russia not to invest in the country's oil and gas industry.

"The news from Nigeria (about) more attacks on oil facilities and the fact that two refineries are now shut down are supporting the market," said Andy Lipow, president at Lipow Oil Associates.

Other analysts said oil prices also had support from a weaker US dollar, which rallied briefly after a US central bank announcement Wednesday that it will maintain its monetary policy and keep interest rates at near zero.

The Fed's action helped lift the stock market and encouraged riskier market bets, which staunched the dollar rally.

A weaker dollar makes dollar-priced oil cheaper to holders of stronger currencies, encouraging demand and leading to higher prices.

Singapore's DBS Bank said however that governments would not like to see the US dollar collapse because of its influence on international trade.

"As far as Asian policymakers are concerned, shifting the economy's reliance towards domestic demand away from exports is not a structural change that can be achieved overnight," it said in a research note.

"Hence, they have been reluctant to let the US dollar fall below the post-crisis consolidative ranges against their currencies."

Industrialised countries also feel it is not the right time for the dollar to further depreciate, DBS said.

Many monetary policymakers "believe that the market has swung from excessive pessimism to excessive optimism," the bank said.

"A US dollar crisis could lead the green shoots (of economic recovery) to turn to brown weeds if it results in an unabated rises in both government bond yields and oil and commodity prices," it said.


(AFP)