* Oil up over $2 after near-$5 fall on China fuel price hike
* Analysts say China price hike may lead to increased demand
* Iran says OPEC members unlikely to agree on output change
(Recasts, adds comment, updates prices)
By Santosh Menon
LONDON, June 20 (Reuters) - Oil rose by almost $3 a barrel
on Friday on a view now gaining ground that a surprise fuel
price increase by China may actually boost rather than curtail
demand for fuel in the world's second-largest oil consumer.
Oil plunged nearly $5 in the previous session after China
raised pump gasoline and diesel prices by up to 18 percent, its
first hike in eight months as the government bowed to a nearly
$40 increase in crude prices since the last hike in November.
U.S. July crude <CLc1>, which expires on Friday, rose $2.68
to $134.61 a barrel by 1214 GMT, after slipping earlier in the
day. London Brent <LCOc1> was $2.76 up at $134.76.
Initial forecasts suggested the Chinese move would hurt
demand, but some analysts now say consumption will rise as the
price increase will encourage healthier supply at the pumps.
Chinese fuel pumps have faced long queues and rationing as
refiners cut back on production to limit hefty losses made by
selling discounted fuel. []
"We do not think that a country where consumers are used to
waiting 3 hours for automotive fuel in many cases, will see
significant negative demand elasticity from a simple
20 percent price increase," said Citi analyst James Neale.
Societe Generale analyst Mike Wittner added: "We think, if
anything, the Chinese price increase would tend to increase
consumption and not decrease it."
Demand from China, India and the Middle East has been cited
as a factor behind oil's almost sevenfold surge from $20 six
years ago to a record high of nearly $140 a barrel this week.
High fuel costs have dented demand in other consumers, such
as the United States and Britain.
HOTSPOTS
"Traders don't want to be short going into the weekend.
There are just too many hotspots around the world now... There
is more potential for bullish news than bearish news," said
Gerard Rigby of Fuel First Consulting in Sydney.
One such hotspot is Nigeria, where militants in speedboats
attacked Royal Dutch Shell's <RDSa.L> 220,000-barrel-per-day
Bonga offshore facility and cut oil output at the world's
eighth-largest oil producer by a tenth.
Shell said it was too soon to say how long output at the
deepwater installation would be shut down. OPEC member Nigeria
is already producing about 20 percent below potential due to
sabotage by militants in the Niger Delta oil hub.
Meanwhile, expectations are receding that an emergency
meeting between consumers and producers in Saudi Arabia on
Sunday to discuss ways to tame oil prices could lead to a
meaningful increase in supplies.
"The more information that comes out, it seems that there is
possibly less to this meeting than meets the eye," said Wittner,
adding that expectations of any supply boost had been scaled
down to 200,000 barrels per day now from 500,000 bpd a week ago.
Saudi Arabia reiterated on Friday it would do all it could
to stabilise the world oil market and protect the interests of
producers and consumers equally and world economic growth.
But Iran said it was unlikely that OPEC members would reach
an agreement on crude output change at the weekend meeting.
Venezuela does not plan to attend the Sunday meeting.
(Additional reporting by Chua Baizhen; Editing by James Jukwey)
