©Jin Lee/Bloomberg

Crude oil rose above $120 a barrel to a record in New York after a report showed that U.S. service industries expanded in April, signaling higher energy use. Crude oil for June delivery climbed $3.65, or 3.1 percent, to settle at $119.97 a barrel at 2:42 p.m. on the New York Mercantile Exchange. It was the highest closing price since trading began in 1983. Futures surged to an all-time intraday high of $120.36 a barrel today.

The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the economy, grew for the first time since December, the Tempe, Arizona-based group said today. The report came after an oil pumping station was attacked in Nigeria.

The ISM report "probably gave us a little bit of a bounce psychologically,'' said Phil Flynn, a commodities trader for Chicago-based Alaron Trading. "Maybe the demand for oil is going to rebound.''

U.S. demand for petroleum products, such as gasoline and diesel, fell 2.7 percent in the past year, Energy Department data show, as slowing economic growth and higher-than-normal energy prices curtailed consumption. The decline has been countered by rising use in developing countries.

Demand in China, India, the Middle East and Russia "can grow more than we are currently shrinking,'' said Roger Read, a Natixis Bleichroeder analyst in Houston. "You keep thinking that there's got to be a point at which demand stops growing, but we haven't reached it yet, at least not in dollar terms.''

Nigeria

The weekend attack in Nigeria, Africa's biggest oil producer, forced Royal Dutch Shell Plc to reduce output, the Associated Press reported May 3, citing the company. The Nigerian Movement for the Emancipation of the Niger Delta, or MEND, claimed responsibility for the assault.

The attacks "could take more oil off the market,'' said James Ritterbusch, president of Ritterbusch & Associates, in Galena, Illinois. "There is not much margin for error as far as losing barrels.''

MEND has targeted Shell-operated pipelines in Nigeria, forcing the company to halt 170,000 barrels a day of exports of Bonny Light crude.

"Every time it appears they're going to calm down in Nigeria, they seem to get worse,'' Flynn said.

Exxon Mobil Corp.'s Nigeria unit will probably return to its normal rate of oil production of about 860,000 barrels a day by the middle of the week following the settlement of a labor strike, a government spokesman said.

Weaker Dollar

Oil is priced in dollars. The dollar traded at $1.5494 per euro at 2:40 p.m. in New York, from $1.5424 on May 2. The U.S. currency has lost 14 percent against the euro over the past year.

In dollars, West Texas Intermediate, the New York-traded crude-oil benchmark, is up 94 percent from a year ago. Oil is up 70 percent in euros and 69 percent in yen.

Brent crude oil for June settlement rose $3.43, or 3 percent, to a record close of $117.99 a barrel on London's ICE Futures Europe exchange. Prices rose to an intraday high of $118.58 a barrel today.

Oil prices were expected to fall this week according to 14, or 61 percent, of 23 analysts surveyed May 1 by Bloomberg News.

Hedge-fund managers and other large speculators reduced bets on rising oil prices for the first time in four weeks, the U.S. Commodity Futures Trading Commission said May 2.

Net-long positions in New York oil futures, the difference between contracts to buy and sell the commodity, fell 24 percent to 53,311 contracts in the week ended April 29.