Oil surged more than $3 to break through the $120 level Monday on concern a rebel attack in Nigeria would disrupt that country's production, Bloomberg News reported.

The markets were also rattled by a New York Times report indicating that Iran has apparently rejected the west's latest package of incentives to end its nuclear program.

Oil rose $3.86 to a record $120.21 per barrel, before drifting back slightly to $119.75 on Monday at mid-day.

The other major energy commodities also rose substantially Monday morning. Heating oil jumped 9 cents to $3.31 per gallon, unleaded gasoline surged 7 cents to $3.04 per gallon, and natural gas rose 36 cents to $11.13 per million BTUs.


In Nigeria, militant attacks during the past weekend on an oil-transfer facility in the country forced Royal Dutch Shell Plc to reduce output, Bloomberg News reported. The Nigerian Movement for the Emancipation of the Niger Delta, or MEND, claimed responsibility for the weekend attack.

Concerns about global oil supply

Economist Peter Dawson told BloggingStocks Monday the Nigerian issue "will add to supply concerns in already oil-strained world."

"That Nigerian production remains critical. It's only about 2 million barrels a day but because so much of it goes to the west, the markets will bid oil up substantially, if it looks like production drops for more than a week or two," Dawson. "A supply reduction anywhere in the world would cause prices to rise, because global supply is barely exceeding demand, but the market has been particularly sensitive to Nigeria because of the potential for a long production disruption, due to the rebel attacks."

Global oil demand for 2008 is now projected to be 87.2 million barrels per day, according to the International Energy Agency. Meanwhile, global oil supply for March 2008 totaled 87.3 million barrels per day, due to lower supplies this winter from OPEC, the North Sea region, and non-OPEC Africa.

Dawson said $120 per barrel oil, if sustained, will constrain U.S. economic growth, and slow global growth. "I'm in the camp that says there's almost no way the U.S. economy can grow with $120 oil. It lowers disposable income to such a degree we'd need a consumer gasoline tax credit just to get the economy back to where we were two years ago," Dawson said. "It also will really slow global growth, and we're already seeing evidence of that in non-oil producing nations."