By Kevin Morrison, Michael Peel in Lagos and Michael Morgan
FT.com

Oil prices rose more than 2 per cent to nearly $40 a barrel on Tuesday amid concerns about supplies from Nigeria, Russia and Iraq, three of the world's top producers.

Most of the rise was prompted when Total, the French oil producer, declared force majeure and stopped production of Nigerian crude after three days of disruption over internal reorganisation plans. Renewed concerns about US refinery capacity pushed up US petrol and heating oil prices, which contributed to the higher crude price.

US benchmark crude futures touched $39.70 a barrel, their highest level since prices slid from a record high of $42.45 early last month. By early afternoon in New York the August Nymex WTI futures contract was $1.06 higher at $39.45 a barrel in the first trading session since the Independence Day holiday weekend. US crude futures have risen about 12 per cent from two-month lows reached last week.

Michael Rothman, chief energy strategist at Merrill Lynch, said three issues had prompted US oil markets to rise: Total's problems in Nigeria, security concerns over Iraq and the long-term viability of Yukos, one of Russia's top producers facing a $3bn tax bill.

Concerns about supply disruptions are occurring when global spare oil production capacity is at its lowest in more than 30 years. Consumption is growing at its fastest rate in 16 years.

"These factors again raise the issue about the spare capacity within Opec and how are they going to expand production capacity," said Mr Rothman.

Opec - the Organisation of Petroleum Exporting Countries - has not increased its total capacity for the past 30 years in spite of members holding about two-thirds of the world's reserves.

Total said it was in talks with Nigerian labour unions to end three days of output disruptions. The company said opposition from the white-collar Pengassan oil workers' union to its planned reorganisation forced it to abort an attempt on Tuesday to restart its 225,000 barrels a day output.

Shares in US airlines dropped: Delta Airlines by more than 8 per cent, Northwest Airlines by 5 per cent and Continental Airlines by almost 4 per cent.

By midsession the Dow Jones Industrial Average was 0.6 per cent lower at 10,219.42 and the Nasdaq Composite had dropped 2 per cent to 1,966.70. Tokyo also closed lower.

The Nikkei 225 Average lost 0.5 per cent to 11,475.27, its first close below 11,500 since mid-June. European markets closed at their lowest level for a month.

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