May 24, 2007

Nigeria tensions send oil prices to 9-month high

Published: Thursday, May 24, 2007

LONDON -- Oil hit a nine-month high above US$71 on Thursday, propelled by a strike threat to Nigeria's hobbled output and a report by U.N. nuclear monitors that opened the way to tougher sanctions against Iran.

London Brent crude, a more accurate indicator than U.S. oil, was up 68 US cents at US$71.28 a barrel by 1200 GMT, after hitting US$71.42, the highest since August 28, 2006.

U.S. crude traded down 33 US cents at US$65.44.

Font: ****Prices steamed higher on Wednesday after U.S. warships put on a show of force off Iran's coast, coinciding with a report by U.N. monitors that Tehran had expanded its nuclear programme.

"That played into the price action although the report had nothing new in it. It was a knee-jerk reaction to the headlines," said Mike Wittner of investment bank Calyon.

The rally accelerated on Thursday when workers at Nigeria's state oil company began an indefinite strike and unions said they would target oil output if their demands were not addressed within days. Militant attacks have already shut nearly a quarter of production in the world's eighth-biggest oil exporter.

The heightened Iran tension and new threat to Nigeria's exports added to concerns about fuel supplies in the world's top consumer the United States, where gasoline inventories have been rising but remain below average ahead of peak summer demand.

"The gasoline situation remains critical...Stocks stand at a seasonal low with the driving season officially set to kick off this weekend," Citigroup said in a research note.

Militant attacks have cut production of gasoline-rich crude from Nigeria by 695,000 barrels per day.

"Two big things are keeping prices up, the Nigerian and gasoline situation," said Tony Nunan of Mitsubishi Corp.

Calyon's Wittner said crude supplies in the Atlantic basin were relatively tight because of the closure of Nigerian oilfields and reduced North Sea loadings due to maintenance. At the same time, refineries were cranking up their operations.

Oil prices have more than trebled since the start of 2002 and hit a record US$78.40 in July 2006. But the world economy has continued on a growth path. The president of one of the world's top oil trading houses said he believed prices were nearing the point of demand destruction, however.

"My view is that we are pretty close to demand destruction - we are within 10-20 percent where we see reduced demand rates of growth," said Ian Taylor, president of Swiss-based Vitol Group, at a conference in Singapore.

UPI Energy Correspondent
Persistent violence in Nigeria's oil-laden delta and attacks on petroleum installations are in part responsible for the recent spike in oil price worldwide, analysts and experts said this week.
Brent crude surpassed the $70 a barrel mark earlier this week, marking a nine-month high. Prices at U.S. pumps jumped on average 11 cents a gallon in the past month, a spike many blame on militant groups operating in the remote thicket of the Niger Delta, home to much of the West African nation's highly coveted sweet crude.

Militants were blamed Tuesday for abducting another four foreign workers from the delta city of Warri, Nigerian police said Wednesday.

There are currently more than a dozen foreigners being held by armed militant groups, some for several weeks. Since the beginning of the year, more than 150 people have been taken hostage by militants, who have called for more equitable distribution of oil revenue and an end to government corruption.

Nigeria's political leaders are blamed by many of the country's poor -- more than 70 percent of the country lives on less than one dollar a day -- for siphoning off oil revenue for personal use and neglecting to develop the country's infrastructure and social programs, particularly in the delta.

Since the 1970s, Nigeria, Africa's No. 1 oil producer, has pumped more than $300 billion worth of crude from the southern delta states, according to estimates.

High unemployment in the delta, environmental degradation due to oil and gas extraction, and a lack of basic resources such as fresh water and electricity have angered the region's youth, who have taken up arms, many times supplied by political leaders.

Militants like the Movement for the Emancipation of the Niger Delta have vowed to step up attacks until May 29 when President-elect Alhaji Umar Musa Yar'Adua is scheduled to take over from Olusegun Obasanjo, who MEND says has facilitated corrupt government officials who spent the past eight years pilfering state coffers awash with petrodollars.

"The whole place is in crisis now," Patrick Naagba, a leading analyst and expert on militancy, told United Press International last month. "Nobody seems to have a solution to what is happening. ... It all boils down to corruption."

During his eight-year tenure, Obasanjo made what appeared to be forays into tackling government corruption, even creating a commission to weed out those candidates seeking to succeed him in April's presidential election who were deemed too corrupt to run.

However, critics of the president and opposition leaders contend his corruption crackdown was merely an effort to thwart the ambitions of political rivals to assure that his chosen successor, Yar'Adua, would win last month's race.

"We must, in Nigeria, do some soul searching and ask how we got here and where we go from here," Nigerian commentator and former presidential candidate Pat Utomi wrote for Nigeria's Guardian newspaper.

Later this month Obasanjo is scheduled to step down and hand over authority to Yar'Adua. If successful it would be the first democratic handover of authority from one elected administration to another since Nigeria gained its independence from Britain in 1960.

Three losing candidates have banded together and signed a petition for that handover to be canceled, along with the results of the April 21 presidential election, due to interference by the ruling People's Democratic Party and armed groups who reportedly intimidated thousands of voters from heading to the polls. Election observers also noted widespread incidents of ballot-box stuffing and other accounts of voter fraud.

Vice President Atiku Abubakar of the Action Congress, Gen. Muhammadu Buhari of the All Nigeria People's Party and Dim Chukwuemeka Odumegwu-Ojukwu of the All Progressive Grand Alliance asked Nigeria's Court of Appeals to nullify the results of the election.

With less than a week till the May 29 handover, a reversal appears highly unlikely.

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