Disruptions In Oil Supply May Extend Price Rise

Here's how a small group of militants in West Africa can help keep an issue alive in presidential politics in Indiana and Washington.

On Sunday morning, an e-mail arrived from a representative of the Movement for the Emancipation of the Niger Delta (MEND) announcing that 36 hours earlier, the group had overrun a "heavily fortified" Royal Dutch Shell oil installation in Nigeria's Bayelsa state.

When commodity markets opened in New York yesterday, crude oil prices pierced the $120-a-barrel threshold for the first time before settling at $119.97, a record.

The $3.65 jump in crude oil prices helped sustain the intensity of political debates about gasoline prices, which yesterday stood at a national average of $3.61 a gallon -- a penny shy of a record and up about 55 cents this year. In an interview with ABC's "Good Morning America" yesterday, President Bush said that the price of gasoline troubled him "a lot" and that rising gasoline prices were "like a tax on the working people."

But however troubled Bush and other political leaders may be, oil experts said the small cushion of excess capacity around the world could mean a continuation of the recent volatility of oil prices at a high level. That could result in a long, hot summer for drivers, and it could leave the domestic U.S. politics of gasoline hostage to outside events.

"This continues to be a crisis-prone market, and that is reflected in the oil price," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "The fundamental fact is that it's a tight market."

Concern about Nigeria's output, which has been curtailed recently by labor disputes and militant attacks, raised new fears about the availability of world oil supplies. That concern fed into a rally in oil prices that started on Friday after federal jobs data raised expectations that the U.S. economy would be stronger than expected and that as a result, U.S. demand for oil would be more robust than expected.

"May is the lowest-demand month of the year, so it's really important that we see some buildup of stocks ahead of the summer," said Adam Robinson, an oil analyst at Lehman Brothers. "And here you have a couple of factors chipping away at that seasonal cushion."

Financial considerations continued to play a role in the high level of oil prices, oil experts said.

Robinson said that after 15 months of steady increases in oil prices, traders were reluctant to sell crude oil short, a financial method of betting on a price decline.

"There's nobody waiting at retail stations to fill up cars, and there's no problem getting crude to refineries," said Rob J. Routs, executive director of oil products at Royal Dutch Shell. "The subprime crisis has redirected a lot of money into commodities." That, he added, was creating a "speculative premium."

Oil prices "have changed dramatically" over the past year, Routs said, "certainly beyond our expectations."