Oil prices rebound above $131 after 3-day drop - KFDA - NewsChannel 10 / Amarillo News, Weather, Sports

Oil prices rebound above $131 after 3-day drop

Oil prices rose above $131 a barrel Friday as news of an output cut in Nigeria helped to halt the sharp decline in prices that began three days ago.

Oil futures were also bolstered by investors who saw an opportunity to buy into the market after prices fell nearly 11 percent, earlier in the week.

By the afternoon in Europe, light, sweet crude for August delivery was up $1.88 at $131.17 a barrel in electronic trading on the New York Mercantile Exchange.

Prices Friday were fluctuating between a low of $128.54 and a high of $132.04, responding also to relatively small changes in the valuation of the U.S. dollar against the euro and the Japanese yen.

The Nymex contract fell $5.31 to settle at $129.29 a barrel in Thursday's floor session. That brought the total decline over the past three days to nearly $16.

In London, Brent crude futures for September delivery rose 81 cents to $131.88 on the ICE Futures Exchange.

Regarding Nigeria, Eni SpA said Thursday that it had shut down pipelines carrying 47,000 barrels of oil a day after a "sudden drop of pressure."

A Nigerian military official said an explosion had damaged an Eni pipeline in the country's oil-rich south early Thursday, although he didn't know how severely.

"I can confirm that there was an explosion, but we don't yet know if the pipeline was vandalized or if it was an accident," Col. Chris Musa, the head of the Bayelsa State military, told The Associated Press.

Eni said in a statement that the causes of the incident were unknown but that it had already call in units to start repairs.

"A lot of the threat to Nigerian production has already been priced in, but that explosion may create some interest," said Mark Pervan, a senior commodities strategist with ANZ Bank in Melbourne.

Attacks on the region's oil industry infrastructure in the past two years have slashed oil output by almost a quarter in Nigeria, Africa's top crude producer. The instability has helped push worldwide crude prices to historic highs.

Analysts also said that news the United States' direct involvement in talks with Iran about its nuclear activities was also helping dilute some of the pressure from geopolitical factors which had been reinforcing the energy market's bullish sentiment.

"We are for now a bit far away from the atmosphere of imminent confrontation that was fueling the market fire a few weeks ago," said analyst Olivier Jakob of Petromatrix in Switzerland.

U.S. Undersecretary of State William Burns will attend talks in Geneva, Switzerland, on Saturday and meet with a top nuclear negotiator from Iran, a sea change from Washington's policy which until now had avoided direct contacts with Iran.

The United States and five other nations are trying to entice the Iranians into suspending its uranium-enrichment program in exchange for a package of economic and political incentives.

Based on how oil prices were developing from the technical point of view, Jakob said Nymex futures were "getting into deeper trouble."

"Buying here is an opportunity if you are a deep believer in US$200 (a barrel), otherwise we think that caution would be better applied," Jakob said in a research note.

Rising crude inventories and comments from Federal Reserve Chairman Ben Bernanke warning of "significant challenges" facing the U.S. economy stoked expectations this week that slowing economic activity will help cut demand for oil products, such as gasoline.

"The rise in inventories gave investors a reason to sell what looks like was an over-bought market," said Pervan. The market also reacted this week to Bernanke's comments, "which were much more cautious than before," he said.

Pervan said he expects crude oil to average US$135 a barrel in the third quarter and US$125 a barrel in the fourth quarter.

In other Nymex trade, heating oil futures fell 0.94 cent to $3.7344 a gallon while gasoline prices rose 2.85 cents to $3.1918 a gallon. Natural gas futures rose 3.9 cents to $10.576 per 1,000 cubic feet.

Associated Press writer Alex Kennedy in Singapore contributed to this report.

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