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THE WALL STREET JOURNAL: Nigeria Attacks Fuel Oil-Price Jump


More Disruptions Expected
Amid Conflict With Rebels;
Crude Hits $61.10 a Barrel
By SPENCER SWARTZ
February 22, 2006; Page C3

LONDON — World oil markets should expect more supply disruptions in Nigeria as military forces are stretched in dealing with militants emboldened by a series of recent attacks on oil facilities.
Stability in Africa's biggest oil-producing nation hit a new low Saturday when militants abducted nine foreign oil workers and attacked a handful of oil pipelines and loading facilities, cutting Nigeria's output available to global markets by 19%.
“I think this is the most serious it's been in three years,” said Stewart Williams, Africa analyst at Wood Mackenzie, the Edinburgh, Scotland, consultancy. “There was a period when things looked like they were getting better, and clearly they are now going the other way.”
The attacks have pushed crude-oil prices higher in the past few days. Benchmark light, sweet crude-oil futures for March settled up $1.22, or 2%, to $61.10 a barrel on the New York Mercantile Exchange, marking the highest closing in a front month since Feb. 13.
Nigeria's high-quality light, low-sulfur oil, referred to as sweet, is coveted by refiners in the U.S. and Europe because of its high gasoline content and relatively cheap processing costs.
Nigeria, a member of the Organization of Petroleum Exporting Countries, is the fifth-biggest oil exporter to the U.S., which took on average about 1.1 million barrels a day of Nigerian crude in 2004.
Recent supply disruptions aren't expected to have any immediate impact on U.S. gasoline prices because demand is in a seasonal lull, with many U.S. refineries going into planned maintenance and with gasoline inventories well above year-ago levels. But any prolonged disruptions in Nigeria would likely hit U.S. consumers as the summer driving season approaches.
The militants' attacks are concentrated on facilities owned by Royal Dutch Shell PLC, which produces almost half of Nigeria's daily oil output. The company said yesterday the attacks curtailed production of 455,000 barrels a day. Some analysts believe that level of production offline could be routine in the months ahead.
“While in the past, small-scale intermittent attacks have normally curbed 5% to 10% of Nigerian crude-oil supply, escalating well-organized and sophisticated attacks against oil installations this year will likely regularly disrupt about 10% to 20% of supply,” wrote Sebastian Spio-Garbrah, an analyst at the Eurasia Group, in a research note.
The Movement for the Emancipation of the Niger Delta, or MEND, is behind most of the attacks. The militants are seeking to have two leaders of the ethnic Ijaw group, which dominate the Niger Delta, released from prison and absolved of treason and money-laundering charges.
In addition to their demands, the militants also want to wrest greater control of oil resources. While military troops have moved to control the unrest, the government faces the task of decreasing the violence and protecting oil staff and facilities.
“Obviously, the situation in Nigeria is very serious, and one hopes it doesn't get out of hand,” said Rilwanu Lukman, former secretary-general of the Organization of Petroleum Exporting Countries and former Nigerian oil minister. “But the government doesn't want to overdo things by using too much force.”
MEND said it launched attacks Saturday in response to military raids last week on militants suspected of stealing crude oil. The group has vowed to shut down 30% of Nigeria's daily oil output by the end of February.
MEND is allied with other militia groups, such as Martyrs Brigade, which thwart government efforts to track down militants.
Analysts say troops in the field often are underpaid and sometimes help militants in plundering crude oil, a lucrative business that fuels a cycle of violence in which oil is sold for weapons.
In other commodity markets:
SOYBEANS: Prices on the Chicago Board of Trade fell as rains showered Argentina's parched soy belt this week and worries grew about the spread of deadly bird flu in Europe. The diet of poultry consists of soybean products, so culling of birds in Europe lessens soy demand. March soybeans fell 13.75 cents a bushel to $5.8750.
COPPER: Futures rose on the Comex division of the Nymex. Speculative traders bought up copper when prices passed through important technical chart levels. Spot-month March gained 7.25 cents to $2.2735 per pound.
—- Sally Jones contributed to this article.
Write to Spencer Swartz at [email protected]
RELATED WALL STREET JOURNAL ARTICLE:
Nigerian Militants Resist Talks
Associated Press
February 21, 2006 2:54 p.m.
LAGOS, Nigeria — Militants holding nine foreign oil workers hostage refused to negotiate directly with the Nigerian government Tuesday, while crude oil prices climbed on worries that the country's recent pipeline attacks could disrupt global supply.
The West African nation — the fifth-largest oil supplier to the U.S. — is reeling from weekend attacks in which militants blasted oil and gas pipelines and sabotaged a key oil-loading terminal belonging to Shell Oil Co. That and an earlier attack have forced Shell to halt the flow of about 455,000 barrels a day, about one-fifth of daily output.
The Movement for the Emancipation of the Niger Delta said there have been no negotiations for the release of the hostages — three Americans, two Egyptians, two Thais, one Briton and one Filipino — who were seized Saturday. The militants called for independent negotiators. “The Nigerian government is fraudulent and we can never go into negotiations or dialogue with this fraudulent government without the involvement of a neutral third party,” the group's spokesman said in an email to the Associated Press.
The militants, who are pressing for the release of two of the region's leaders from prison and greater control of oil revenues, said they would welcome entreaties from the captives' families.
Dozens of armed militants seized the nine foreigners after storming a barge belonging to the Houston-based oil services company Willbros Group Inc., which was laying pipeline for Shell. The kidnappings came amid a rise in violence in Nigeria's oil-rich south that has cut some 20% of the country's crude production.
Nigeria, Africa's leading oil exporter, usually sends out 2.5 million barrels daily. Violence and sabotage of oil operations have been common in the oil-rich Niger Delta for the past 15 years amid demands by the region's impoverished communities for a greater share of the oil revenue flowing from their land.
The violence led to concerns about supply disruptions that helped send oil prices higher on international markets. (See related story.)
Hostage takings are a common occurrence in the volatile delta, but most captives are released unharmed. Last month, militants held four foreigners for 19 days before releasing them unscathed.
On Monday, the group attacked a pipeline and a houseboat they said housed Nigerian military, vowing to spread their campaign across the vast southern region of swamps and creeks from where most of the African oil giant's crude is pumped. A Shell spokeswoman said the houseboat was abandoned before attackers blew it up. It was unclear who owned the boat and military officials could not be reached for comment Tuesday.
The group also has threatened to kill President Olusegun Obasanjo if he enters the region.

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