Oil rises above $142 on supply concerns, weak dollar

SINGAPORE (Reuters) - Oil rose more than $1 a barrel on Wednesday, within sight of Monday's record high above $143 on forecasts that global supply will lag demand and expectations the European Central Bank will raise interest rates later this eek.

U.S. crude rose $1.24 to $142.21 a barrel by 0559 GMT (1:59 a.m. EDT), while London Brent crude gained $1.43 to $142.10.

The International Energy Agency on Tuesday cut its global oil supply capacity forecast by 2.7 million barrels per day (bpd) to 95.33 million bpd by 2012, boosting prices already lifted by tension between Iran and Israel.

Traders also bought crude on the weak dollar, which softened against the euro on Wednesday ahead of Thursday's European Central Bank meeting, which is widely expected to conclude an interest rate hike to deal with quickening euro zone inflation.

"The U.S. dollar is an each-way bet and will likely cause some volatility in prices," Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank, said in a research note.

"On balance, if Iran, Nigeria and Israel can stay out of the news for the rest of the week, traders should take profits," he added.

Oil hit a record $143.67 a barrel on Monday, taking its gains for the year to nearly 50 percent, in part due to concerns that tension between Israel and Iran could disrupt supply from the Middle East Gulf.

Iran's Revolutionary Guards had said it would impose controls on shipping in the Strait of Hormuz should the country be attacked. About 40 percent of all seaborne oil trade passes through the Strait, according to the U.S. EIA.

The U.S. State Department on Tuesday criticized comments by an unidentified senior U.S. defense official who told ABC News there was an increasing likelihood Israel would attack Iran over its nuclear program.

Adding to supply worries, OPEC President Chakib Khelil said the cartel did not have enough spare capacity to replace Iranian oil if Tehran were to cut exports due to an attack.

Traders will look out for U.S. oil inventories data later on Wednesday and the monthly U.S. employment report due on Thursday for further indications of the economic outlook for the world's top oil consumer.

"We can expect oil price fluctuations to be limited today and tomorrow as the market is awaiting stocks in the U.S. and payroll tomorrow," said Ryuichi Sato, a commodity analyst at Mizuho Corporate Bank.

Weekly U.S. oil inventory data is expected to show a 100,000-barrel fall in crude stocks, a 200,000-fall in gasoline stocks, and a 1.9-million-barrel build in distillates.

(Reporting by Chua Baizhen, Editing by Michael Urquhart)

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Oil Prices

What's Fueling Rising Oil Prices? SUSIE GHARIB: Another day, another record high for oil prices. In New York trading, June crude futures settled just below $126 a barrel. That's after surging $2.27. Oil rose $10 this week mostly on concerns about supply, as well as renewed weakness in the U.S. dollar. Suzanne Pratt looks at why the sagging greenback has helped to ignite oil prices. SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the last five trading days, the price of crude oil has hit a new record each and every day. Since last May, crude futures have nearly doubled and some experts now think $200 a barrel is a possibility within two years. Tight supplies of diesel are largely behind this week's surge in oil prices. Analyst Antoine Halff says continued weakness in the U.S. dollar has also fueled the rally. ANTOINE HALFF, HEAD OF ENERGY RESEARCH, NEWEDGE: The idea is that commodities and oil, in particular have an intrinsic value that's solid, maybe even going up. So, if you invest in those assets, you hedge efficiently against currency depreciation, against inflation and so on. PRATT: Since 2007, the dollar has lost about 14 percent versus the euro, while against the Japanese yen it's off nearly the same amount. Currency experts say America's anemic economy is behind the dollar's decline. The Federal Reserve has cut rates seven times since September to stave off recession and calm rattled markets. Those cuts have created a huge differential between rates in the U.S. and in Europe as the European central bank has left rates untouched. Societe Generale's Carl Forcheski says while it has gained in prominence, the euro is unlikely to replace the dollar as the world's premiere currency. CARL FORCHESKI, HEAD OF CURRENCY TRADING, SOCIETE GENERALE: It's become a little more of a balance. Whether it's going to supercede the dollar, time will only tell. I don't think so, but it certainly has grown in its liquidity, availability, as well as attraction to a lot of multinational corporations here in the U.S. as well as in Europe. PRATT: In recent days, there's been much talk of a rebound in the dollar. Even if that happens, experts believe oil prices will continue to rally. That's because they say the reverse correlation between oil and the dollar does not have a lengthy history. HALFF: The fact is that that relationship is very tenuous; it's very fragile. In the last week, we've seen on some days the dollar go up against the euro and yet oil prices did go up. PRATT: Surging oil prices continue to push gasoline prices higher. The national average for a gallon of gas climbed $0.33 in the past month and some now predict that national average could hit $4 next month. Source: Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York. Currently reading page 1 of 1. 1 /Pagination -->

Cracking Process

Cracking A generalised cracking reaction. Each angle represents a carbon so this shows molecules with 20 to 30 carbons being cracked into molecules with 2 to 7 carbons. The crude oil product with the biggest demand is petrol, which is made from the naphtha fraction. This fraction contains molecules with 5 to 10 carbons in their chains. As such, it is one of the lighter fractions. Although around 20% of a barrel of crude oil eventually goes to petrol, there is nowhere near this amount of naphtha in the raw crude. So, the demand is much greater than what is available. However, there is a surplus of heavier fractions like heavy gas oil, which has very few direct uses. Its molecules have more than 20 carbons in their chains. The solution is to break up these long chain molecules into the shorter molecules that are useful in petrol. We call this process cracking. The cracking reaction can be induced using high temperatures in the presence of steam or a catalyst. The steam cracker reacts steam with heavy gas oil. The heavy gas oil is called the feedstock - i.e. it is what we feed into the cracker. The long chain hydrocarbons are split into much shorter chains with 1 to 8 carbon atoms. The main product is ehtene (with 2 carbons). The C5 to C8 hydrocarbons go into the petrol blend. The catalytic cracker takes a number of feedstocks, including heavy gas oil, treated fuel oil and residue from the lubricant treatment plant. The feedstock is mixed with a hot catalyst and passes up through the reaction vessel (shown on the right in the picture). The catalyst allows the cracking reaction to take place at a relatively low temperature (about 500°C). The products pass out of the top of the reactor vessel (you can see the pipe in the picture) to a fractionating column to be separated. About 20% of the product goes into petrol. The rest are lighter hydrocarbons which pass into the refinery processes. The catalyst flows back into the regenerator on the left where it is reheated to burn of the carbon ready for another round of catalysing. You can see an animation of the catalytic cracking process (including a ride on a catalyst crystal) by clicking here. Source : Energy Institute

Lubricant From Wikipedia, the free encyclopedia A lubricant (sometimes referred to "Lube") is a substance (often a liquid) introduced between two moving surfaces to reduce the friction and wear between them. A lubricant provides a protective film which allows for two touching surfaces to be separated and "smoothed," thus lessening the friction between them. Lubricants chemically interact with all surfaces so that contact only occurs with the smooth and free lubricant. By this process, abrasive particles are dissolved into the lubricant, thus making them also very good solvents and cleaners. Petroleum-based lubricants like Vaseline tend to dissolve petroleum products such as rubber and plastic, while water-based lubricants tend to dissolve polar chemicals (like water and dirt); hence the additives. The lubricant must be replaced when it has dissolved to saturation, because the inability to dissolve additional abrasive debris allows abrasive particles to scrape against or become lodged in the working surfaces, thus introducing a margin for physical contact between them. Lubricants which dissolve working surfaces (such as Vaseline with rubber) defeat their purpose by corroding the smooth surfaces by their own dissolving power, thus compromising structural integrity, surface smoothness, and system-wide contamination. One of the single largest applications for lubricants, in the form of motor oil, is to protect the internal combustion engines in motor vehicles and powered equipment. Typically lubricants contain 90% base oil (most often petroleum fractions, called mineral oils) and less than 10% additives. Vegetable oils or synthetic liquids such as hydrogenated polyolefins, esters, silicone, fluorocarbons and many others are sometimes used as base oils. Additives deliver reduced friction and wear, increased viscosity, improved viscosity index, resistance to corrosion and oxidation, aging or contamination, etc. Lubricants such as 2-cycle oil are also added to some fuels. Sulfur impurities in fuels also provide some lubrication properties, which has to be taken in account when switching to a low-sulfur diesel; biodiesel is a popular diesel fuel additive providing additional lubricity. Non-liquid lubricants include grease, powders (dry graphite, PTFE, Molybdenum disulfide, tungsten disulfide, etc.), teflon tape used in plumbing, air cushion and others. Dry lubricants such as graphite, molybdenum disulfide and tungsten disulfide also offer lubrication at temperatures (up to 350 °C) higher than liquid and oil-based lubricants are able to operate. Limited interest has been shown in low friction properties of compacted oxide glaze layers formed at several hundred degrees Celsius in metallic sliding systems, however, practical use is still many years away due to their physically unstable nature. Another approach to reducing friction and wear is to use bearings such as ball bearings, roller bearings or air bearings, which in turn require internal lubrication themselves, or to use sound, in the case of acoustic lubrication. In addition to automotive and industrial applications, lubricants are used for many other purposes, including as a personal lubricant, bio-medical applications (e.g. lubricants for artificial joints) and others. Source: Wikipedia