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THE NEW YORK TIMES: Violence in Nigeria Sends Oil Higher

Published: February 21, 2006
Oil prices rose sharply yesterday after a series of attacks in the Niger Delta that shut down nearly a fifth of Nigeria's oil production.
In Visits to 3 States, Bush Pushes Alternative Energy (Feb. 21, 2006) Brent crude oil for April delivery jumped $1.57 a barrel, to $61.46, on London's ICE Futures exchange. The market in the United States was closed because of Washington's Birthday.
Tensions in the oil-rich Niger Delta have flared since Saturday after militants kidnapped nine foreign oil workers, set pipelines on fire and disrupted a major export terminal in the latest series of clashes between local ethnic groups and the Nigerian central government. As a result of these attacks, Nigeria's oil production has been cut by 455,000 barrels a day out of a total of about 2.5 million barrels, according to Royal Dutch Shell, the main foreign producer in Nigeria.
A major oil field was shut down as a precautionary measure, Shell said.
The threat to oil supplies from Nigeria, Africa's largest oil producer, comes at a time of heightened concerns about the security of global supplies given the overall tightness in production and the rising demand for oil. Because there is little spare capacity in a global oil system that consumes some 84 million barrels of oil a day, small incidents can have broad effects.
“The incidents in Nigeria are happening at a time when geopolitical events seem to be following each other at a near-continuous rhythm — the worsening of Iraq's oil industry, the tensions with Iran, or the continuous war of words with Venezuela's Hugo Chávez,” said Frédéric Lasserre, the head of commodity research at Société Générale in Paris. “It's a long list, and it fosters a climate of very volatile oil markets.”
Rebels with a group called the Movement for the Emancipation of the Niger Delta have threatened more violence in a campaign to free two imprisoned leaders, according to the Reuters news agency.
The rebels aimed to cut Nigeria's oil production by 30 percent and warned all foreign workers to leave the delta immediately, Bloomberg News said.
Nigeria is the fifth-largest oil exporter to the United States, after Mexico, Venezuela, Canada and Saudi Arabia. Nearly half of Nigeria's oil exports go to the United States.
According to Shell, the Forcados loading platform, which is located about 20 kilometers offshore, was set on fire while a pipeline was blown up on Saturday.
The nine foreign contractors who were kidnapped on Saturday — three Americans, two Egyptians, two Thais, one Briton and one Filipino national, working for Willbros Group of Houston — were working on a pipe-laying barge.
On Monday, another pipeline was damaged in a new explosion, said Caroline Wittgen, a spokeswoman for Shell in London. Shell has maintained a declaration of “force majeure” for the Forcados terminal, meaning it can no longer honor delivery of its supplies. Last month, the company had already been forced to cut its output sharply because of previous attacks. Analysts said the weekend events showed the rebel groups were willing to step up pressure on the government by aiming at offshore oil facilities, which had largely been spared so far.
“We would expect the potential for further chaos in Nigeria to provide a floor for prices above $60, and we expect that Nigeria will continue to be a major issue in terms of supply security,” Kevin Norrish, an analyst at Barclays Capital in London, wrote in a note to investors.
Armed ethnic groups in the Niger Delta, one of the country's poorest regions, have been fighting for years for a better distribution of the country's oil wealth. Recently, they have increased their attacks to protest the government's crackdown on the theft of oil, a common practice known as “bunkering,” and the arrest of a prominent militia leader.
Since mid-December, incidents in the Western part of the delta have regularly shut down about 10 percent of the country's oil production. Four foreign workers were abducted in January by the Movement for the Emancipation of the Niger Delta and were held for three weeks before being released.
“Such escalating attacks are likely going to be the norm, rather than the exception, for the remainder of 2006,” according to the Eurasia Group, a consulting firm based in New York. It said that the “well organized and sophisticated attacks against oil installations this year will likely regularly disrupt about 10 percent to 20 percent” of Nigeria's supplies.
The country's oil is particularly sought by refiners, especially in the United States, because it is a light, sweet variety that is easier to refine than the thicker, sulfur-rich oil that comes from the Middle East or Venezuela.
Still, analysts said, one mitigating factor against further price increases might be the high level of commercial inventories held in consuming countries. While oil prices remain high because of political tensions, there is no lack of oil sloshing around.
“The markets are very well supplied right now,” Mr. Lasserre said. “Stocks are at a high level and buyers are not queuing up at the door of producers asking for more oil.”

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