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Oil Prices Climb After Attacks Destroy Nigerian Pipeline

Posted on: Tuesday, 21 February 2006, 12:00 CST

By From news reports

The price of crude oil rallied here on Monday in response to violent militant action against oil pipelines in the Niger Delta that led to a 20 percent cut to Nigeria's oil production. Nigeria is Africa's leading oil exporter and one of the United States' top suppliers, usually exporting around 2.5 million barrels daily.

In afternoon trading in London, Brent crude oil for April settlement rose $1.59 to $61.48 a barrel on the ICE Futures exchange. It earlier touched $62.90, its highest level since Feb. 9.

The New York Mercantile Exchange was closed for the U.S. Presidents' Day holiday. Oil prices had jumped more than $1 and settled near $60 a barrel on Friday over supply concerns.

Militants holding nine foreign hostages in southern Nigeria destroyed an oil pipeline Monday and blew up a boat. The Movement for the Emancipation of the Niger Delta said that it attacked a pipeline switching station, known as a manifold, operated by Royal Dutch Shell.

The group also said it had attacked a military houseboat in the oil-rich southern region. "Both were destroyed with explosives," the group said in an e-mail. Lisa Givert, a spokeswoman for Shell, confirmed the oil-pipeline attack. It was unclear who owned the boat. The militants announced no casualties and said the Nigerian sailors fled from the boat on which they lived when the vessel was attacked. Military officials in the region could not be reached for comment. The West African nation is reeling from weekend attacks in which militants blasted oil and gas pipelines and sabotaged a key oil loading terminal belonging to Shell. That and an earlier attack has forced the company to halt the flow of about 455,000 barrels a day about one-fifth of daily output in Nigeria. Violence in Nigeria had abated after an upsurge in January and the market judged Iran's dispute with the United Nations nuclear watchdog posed no immediate threat to supplies. Traders were firmly focused on ample fuel stocks in the top consumer, the United States.

President Olusegun Obasanjo of Nigeria is scheduled to leave office next year. Some of Obasanjo's supporters are advocating a constitutional amendment to allow him to run for a third term.

"The fear with Nigeria is that you've got elections coming up next year and that's leading to the possibility of an upsurge in violence," said Michael Lewis, head of commodities research at Deutsche Bank. The uprising is not "going to be a one-off event." Insurgents set a target last month to cut oil output by 30 percent by the end of February, which no longer seems impossible, Barclays Capital said. "We expect that Nigeria will continue to be a major issue in terms of supply security up to and probably beyond next year's elections."

Separately, the Kuwaiti oil minister said on Monday that oil markets were expected to be oversupplied by up to two million barrels per day in the second quarter because of a seasonal drop in demand. Speaking to reporters in Kuwait, Sheik Ahmad al Fahd al Sabah described current oil prices as "reasonable," but he did not rule out the possibility of a cut in production by the Organization of the Petroleum Exporting Countries in response to market weakness. OPEC is due to hold its next meeting on March 8 in Vienna.

Source: International Herald Tribune

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