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Wed, Jan 04, 2006 - Page 12 News List

Oil rises on worry over growing Ukraine gas dispute

SPECULATION Russia agreed to restore natural gas supplies to Ukraine after cutting them off for a day, but traders are concerned European fuel demand will rise

BLOOMBERG

Crude oil rose for a fourth day yesterday on speculation that demand for oil-based fuels will gain in Europe after a one-day disruption to Russian natural gas deliveries raised concern about the security of energy supplies.

Gas shipments to Poland, Hungary and Austria are returning to normal after Russian gas monopoly OAO Gazprom said it would restore supplies that had been reduced in a dispute over prices with Ukraine. Exports to France, Italy and Germany yesterday fell by as much as 40 percent in the dispute, increasing concern that long-term gas supplies in Europe will be threatened.

"Conflict between Ukraine and Russia will drive up prices of natural gas and this should have some correlated effect on crude," said Dariusz Kowalczyk, senior investment strategist at CFC Seymour Ltd. in Hong Kong. "The only leverage that Ukraine has is that the pipeline to Europe goes through its territory."

Crude oil for delivery next month rose as much as US$0.56, or 0.9 percent, to US$61.60 a barrel on the New York Mercantile Exchange. Oil was up US$0.06 to US$61.10 at 9:14am London time.

Brent crude-oil traded in London gained US$0.14 to US$59.12. Prices rose 40 percent last year, more than the 34 percent gain in 2004.

Natural gas accounts for about 23 percent of Western Europe's energy requirements, according to Fortis Bank. Gazprom Deputy Chief Executive Alexander Medvedev late yesterday promised to resume shipments. The Russian state-run company supplies about 75 percent of European deliveries through Ukrainian pipelines.

Natural gas prices for next day delivery in the UK rose 19 percent yesterday on the APX Gas Exchange. Power prices in Germany, Europe's largest energy user, gained 6 percent, according to Spectron Plc prices on Bloomberg.

European utilities, which are building gas-fired plants to replace ageing coal units, may have to increase output at more expensive oil-fed plants to make up for gas shortages. Natural gas accounts for about a fifth of the power production in the EU, according to the International Energy Agency.

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