* Oil up nearly $3 on tensions between Israel and Iran
* Analysts say China price hike may cause more fuel demand
* Saudi Arabia confirms production boost
(Updates prices)
By Richard Valdmanis
NEW YORK, June 20 (Reuters) - Oil prices rose nearly $3 on
Friday amid escalating tensions between Israel and Iran and
supply disruptions in Nigeria triggered by militant attacks on
a major offshore field.
The gains marked a reversal from heavy losses Thursday that
had been triggered by news China was raising domestic fuel
prices -- a move that could slow demand growth in the world's
second largest energy consumer -- and expectations Saudi Arabia
was planning a 6 percent output hike.
"The petroleum markets rebounded ... on worries that
Israeli military exercises held in the first week of June might
have been preparation for a strike against Iranian nuclear
facilities," said Tim Evans, energy analyst for Citi Futures
Perspective in New York.
U.S. July crude <CLc1> rose $2.69 to settle at $134.62 a
barrel, off highs of $136.80. London Brent <LCOc1> was up $2.86
at $134.86.
A hardline Iranian cleric said on Friday that Israel and
its U.S. ally would receive a "slap in the face" if they speak
of using force against the Islamic Republic, a member of the
Organization of Petroleum Exporting Countries.
The comment came after a report citing U.S. officials
saying that Israel appeared to be rehearsing for a bombing raid
on Iran's nuclear facilities.
Energy experts are concerned any conflict in Iran could
lead to a shutdown of the Strait of Hormuz, a waterway
separating Iran from the Arabian Peninsula, through which
roughly 40 percent of the world's traded oil is shipped.
Adding to oil's gains Friday, Royal Dutch Shell <RDSa.L>
shut 220,000 barrels of daily production in Nigeria after
militants in speedboats attacked the Bonga offshore oil
facility.
Shell said it was too soon to say how long output at the
deepwater installation would be shut. Nigeria, another OPEC
member, is already producing about 20 percent below potential
due to sabotage by militants in the Niger Delta oil hub.
CHINA MOVE TO BACKFIRE?
Oil prices had plunged nearly $5 in the previous session
after China raised fuel prices by up to 18 percent, its first
hike in eight months, as the government bowed to a nearly $40
increase in crude prices since the last hike in November.
Initial forecasts suggested the move by China would hurt
demand, but some analysts now say consumption could rise as the
price increase will encourage healthier supply at the pumps.
Chinese fuel retailers have had to deal with long queues of
customers and rationing as refiners cut back on production to
limit hefty losses made by selling discounted fuel.
[]
"We do not think that a country where consumers are used to
waiting 3 hours for automotive fuel in many cases will see
significant negative demand elasticity from a simple 20 percent
price increase," said Citi analyst James Neale.
Demand for oil by China, India and the Middle East has been
cited as a factor behind crude's almost sevenfold surge from
$20 six years ago to a record high of nearly $140 a barrel.
Oil's rally on Friday also came despite assurances from
Saudi Arabia that it was raising its production after months of
pressure from consumer nations calling for more supply.
Saudi Oil Minister Ali al-Naimi confirmed on Friday the
kingdom will be pumping 9.7 million barrels per day of crude in
July, an increase of 550,000 bpd since May.
Oil traders said Friday's strength was also supported by a
weaker dollar [], which improves the purchasing power of
buyers using other currencies and encourages investors to ply
money into commodities as a hedge against inflation.
(Additional reporting by Santosh Menon, Chua Baizhen; Editing
by Walter Bagley)
