Oil markets' Iraq fear ebbs; Nigeria next?

<a href=www.upi.com>Source By Hil Anderson UPI Chief Energy Correspondent From the National Desk Published 3/23/2003 9:51 PM

LOS ANGELES, March 23 (UPI) -- A flare-up of simmering ethnic violence in Nigeria could soon replace the war in Iraq as the major cause of anxiety for oil traders, who return to work Monday after seeing world crude prices plummet at the end of last week.

ChevronTexaco said Sunday that it had joined the French oil major TotalFinaElf in evacuating personnel and shutting down some operations in the Niger Delta region of the African nation, which has become a leading supplier of crude to the United States.

"The safety of people is our absolute priority and is the reason for our decision to shut in production and relocate our people and community members displaced by the crisis to safe locations," said Jay Pryor, managing director of the Chevron Nigeria Ltd., subsidiary. "While we do not believe the unrest is directed toward CNL people or assets, we do not consider it safe for our people to remain in the Western Niger Delta, given the current situation."

The news from western Africa came after a wildly bearish week that saw front-month crude fall from dizzying heights of near $40 per barrel to Friday's $26.30 settlement price on the New York Mercantile Exchange.

Meanwhile, some price firming was seen on the Singapore exchange late Sunday as Asian traders apparently reacted to the weekend's sharper fighting in Iraq.

ChevronTexaco said it had shut down daily production capacity of 44,000 barrels of oil and 285 million cubic feet of natural gas as well as the Escravos tanker-loading terminal.

Nigeria, an OPEC member and the fifth-largest supplier of crude to the United States, has recently seen an upsurge in fighting among government troops and the two major ethnic groups in the delta region. That region accounts for much of the country's 2 million barrels per day of crude production. Nigeria also supplies oil to India as well as nations in Europe and Asia.

Both ChevronTexaco and TotalFinaElf have declared a "force majeure" for scheduled March deliveries of crude, which means the companies won't guarantee their contracted deliveries will be made on schedule. Such declarations often force oil traders to find replacement supplies on the volatile spot market, where buyers often find that the price is well above the going rate.

The trading period for April crude futures has already expired on the world's major commodities exchanges, although May prices could become more unpredictable as traders calculate the impact the lost Nigerian production will have on oil supplies in the industrialized world.

Crude markets soared in recent months after labor and political strife derailed Venezuela's state oil company, and the United States and Britain began gearing up for what last week became a full-scale invasion of Iraq.

Futures prices tumbled last week after traders decided that the war would be a relatively quick one with little disruption to oil exports from other Persian Gulf producers.

"There is no shortfall in oil production," OPEC Chairman Abdullah bin Hamad al-Atiyyah told an audience in Qatar Sunday.

"OPEC has the capacity to augment production to meet any scarcity in the markets."

According to a Qatari media report monitored by the British Broadcasting Corp., the chairman said that the 3 million bpd that had been lost due to cutbacks in Venezuela and Iraq had been restored, and the cartel saw no need for any immediate increases in production.

"This is a positive development since it has reduced the pressure on world markets and has created a surplus and thus achieved a significant reduction in prices," he added, without addressing the problems in Nigeria. "There is no reason for any anxiety. We do not draw our plans on the basis of fear and anxiety but on the basis of supply and demand in the markets."

Iraq's limited crude exports under the United Nations' oil-for-food program have been suspended, although it appears that Iraq will be able to get back into the market relatively quickly once the Anglo-American invasion comes to a close.

Previous fears that Baghdad would carry out a scorched-earth campaign in its oilfields were on the wane during the weekend after reports from the field found only a handful of wells in the south had actually been torched.

"We have in fact saved the southern oil fields for the Iraqi people, and that's a very good thing, and it was a big risk," Defense Secretary Donald Rumsfeld told NBC's "Meet the Press."

"There are only some 10 out of 500-plus oil wells that are still burning and we have people coming in tomorrow and the next day to repair them."

The BBC reported that a statement from the Baghdad government published in an Iraqi newspaper Sunday heatedly denied the Iraqis were torching their own oil facilities and said: "What is burning in that area is no more than artificial trenches filled with oil to be used as obvious methods of defense."

Iraqi forces were slowly being pushed out of the areas around Basra and Umm Qasar on Sunday, giving the allies virtual control over the region's oil infrastructure, harbors and a refinery with a capacity to process 140,000 bpd of crude.