Oil past $127 on supply fears, OPEC remarks

Oil extended its rally on Tuesday past $127 a barrel, driven by renewed fears of supply disruption and OPEC’s reluctance to raise output at its next meeting in September.

U.S. light crude contract for June delivery rose 35 cents to $127.40 a barrel by 0155 GMT, having settled up 76 cents in New York. Prices were within sight of the intraday record of $127.82 hit on Friday.

"The market is focusing on the supply side again. The supply side risks are driving prices higher," said Gerard Burg of National Australia Bank in Melbourne.

Supply fears resulted from a global diesel boom led by China, the Middle East, South Africa and South America for diesel-fired power generators.

China, the world’s second-biggest energy user, released a total of 8,312 tonnes of refined fuel from its little-known strategic reserves to help relief efforts in quake-hit Sichuan and Gansu provinces.

The amount is less than the worst-hit province of Sichuan uses in one day, and China may be driven to import more diesel to meet peak summer demand.

State Chinese refiners have already bought 650,000 tonnes for June, near the record high of 842,000 tonnes imported for January.

Elsewhere, events shaped to put fuel supply under threat French port workers will hold a 24-hour strike at the oil port of Fos-Lavera on Tuesday in a series of protests against the privatisation of the loading activities of state-run ports.

Nigerian security forces clashed with gunmen trying to rob a bank on Monday outside the gates of a Royal Dutch Shell compound on Bonny Island, home to the Nigerian Liquefied Natural Gas facility.

Oil companies and trading sources say a recent spate of attacks and sabotage have shut in about 559,000 barrels per day of Nigerian production, about 19 percent of the installed output capacity of around 3 million bpd in the West African state.

But oil cartel OPEC said oil markets were well supplied, and blamed high prices on speculation, a weak dollar and geopolitical problems.

OPEC President Chakib Khelil said the group would not meet before its September scheduled gathering and was unlikely to boost output then.

Saudi Oil Minister Ali al-Naimi said the world’s top exporter had boosted oil output by 300,000 bpd to meet demand and compensate for other producers’ lower output.

Forecasts in a Reuters preliminary poll on U.S. petroleum inventory data due out on Wednesday called for a 600,000-barrel rise in crude stocks, a 500,000-barrel gain in gasoline stocks and a 1.3-million-barrel build in distillate stocks.