Oil rose above $70 a barrel on Monday after Nigeria's main militant group said it attacked a Royal Dutch Shell oil platform, outweighing a fairly bearish report from the International Energy Agency (IEA).
The Movement for the Emancipation of the Niger Delta (MEND) said its fighters struck the Shell Forcados platform in the Delta state at about 0230 GMT.
There was no immediate independent confirmation but Shell said it shut in some oil production at its western operations in the Delta while it investigated reports of attacks.
U.S. crude for August delivery rose to a high of $70.80 per barrel, up $1.48, before slipping back slightly to $70.50 by 1328 GMT. London Brent crude was up $1.30 at $70.22.
The Nigerian situation is the main factor in the market, said Mike Wittner, global head of oil research at Societe Generale. The attacks appear to be removing some oil production capacity from the market.
On Friday, four militant Nigerian factions said they would accept in principle an amnesty offer from President Umaru Yar'Adua, raising hopes Africa's top oil producer would halt a battle with rebels.
Pipeline bombings, attacks on oil and gas installations and kidnapping of industry workers over the past three years have prevented Nigeria from pumping much above two-thirds of its installed oil output capacity of 3 million barrels per day (bpd).
The loss of output has been a supportive factor at a time when global recession has bitten deep into oil demand.
DEMAND FORECAST CUT
The IEA, adviser to 28 industrialized countries, has cut sharply its medium-term forecast for oil demand, saying there was a chance of an extended contraction, but added the threat of a supply crunch had only receded, not gone away.
Based on a higher economic growth scenario, the IEA predicted on Monday product demand would grow by 0.6 percent, or 540,000 bpd on average, between 2008 and 2014, taking demand from 85.8 million bpd to 89 million bpd.
The IEA's previous medium-term forecast, issued in December, had forecast growth of a million bpd a year from 2008 to 2013.
Algerian Energy and Mines Minister Chakib Khelil said on Monday oil demand was still weak due to the weakness of the U.S. and European economies and world oil stocks remained high.
Khelil said an increase in OPEC oil production was hard to envisage, despite rising crude prices.
Oil analysts say OPEC can help tighten the oil market significantly later this year if it continues to implement its promise to cut oil production by 4.2 million bpd from its September output levels.
A lot of people seem to be anticipating a third-quarter stock draw, assuming demand is gradually recovering through the end of this year, said Wittner. If, at the same time, OPEC continues to restrain output, the stock overhang should start to be whittled away as the third quarter progresses.
Dealers said macro-economic data would continue to have a major impact on sentiment in the oil market.
U.S. consumer confidence data on Tuesday leads a heavy calendar of economic data this week, including China's Purchasing Managers Index on Wednesday and a U.S. jobs report and manufacturing data on Thursday.
(Editing by Sue Thomas)