Oil up to $88 on Norway strike; EU, China rate cut

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Associated Press

Posted on July 5, 2012 at 5:01 AM

Updated Thursday, Jul 5 at 9:02 AM

Oil edged up to $88 a barrel Thursday as Norway's largest oil company said it would begin shutting down production due to a labor conflict, and central banks in China and Europe slashed their interest rates to boost sagging economic growth.

By early afternoon in Europe, benchmark oil for August delivery was up 46 cents at $88.12 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose $3.91 to close at $87.66 on Tuesday, the last day the August contract settled in New York.

In London, Brent crude for August delivery was up $1.68 at $101.45 per barrel on the ICE Futures exchange.

Statoil, Norway's leading oil and gas company, said it was preparing to shut down production on the Norwegian continental shelf after the Norwegian Oil Industry Association, an employers' group, said it would lock out workers after failing to reach an agreement to end a strike launched last week.

"Statoil is planning a controlled shutdown of production and return of personnel to land" from midnight Monday, the company said in a statement.

Experts estimate the strike has so far affected 13 percent of the total production of the world's eighth-largest oil exporter. The lockdown could lead the Norwegian government to force the workers to end the strike.

Also supporting prices were interest rate cuts announced by Chinese central bank and the European Central Bank, as well as new economic stimulus measures announced by the Bank of England.

China cut its benchmark lending rate for the second time in a month, while the ECB lowered its key interest a record low of 0.75 percent a year and the Bank of England took steps to increase the money supply in the British economy.

Europe's weak economy and the continent's debt crisis have helped pull oil prices down from $106 two months ago.

The U.S. Energy Department's Energy Information Administration announces its weekly report — the market benchmark — later Thursday on the latest U.S. crude supply figures.

The American Petroleum Institute said late Tuesday that crude inventories fell 3 million barrels last week while stocks of gasoline fell 1.4 million barrels.

U.S. gasoline "supplies are low, but demand is even lower," energy trader and consultant The Schork Group said in a report.

Growing tensions between Iran and Western powers over that country's nuclear program also have the potential to shake the oil market. Iran said Wednesday that it can destroy nearby U.S. military bases and strike Israel within minutes of an attack on the Islamic Republic.

Europe implemented a ban on buying Iranian crude July 1 and Iran responded by conducting war games exercises that included test-firing several ballistic missiles.

The U.S. and Israel have not ruled out a military strike on Iran's nuclear facilities. Several rounds of negotiations this year have failed to yield an agreement over Iran's development of nuclear power.

"The upside to oil prices based on Iranian threats cannot be underestimated," Schork said.

In other energy prices, heating oil gained 0.79 cent at $2.7664 per gallon while gasoline futures added 2.04 cents to $2.7433 per gallon. Natural gas lost 0.5 cent at $2.894 per 1,000 cubic feet.

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Alex Kennedy in Singapore contributed to this report.

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