War snags and Nigerian unrest raise oil price

<a href=news.ft.com>Total shutdown By Carola Hoyos, Energy Correspondent, in London Published: March 24 2003 21:44 | Last Updated: March 24 2003 23:20

Setbacks suffered by US and UK troops on Iraq's battlefield on Monday turned the optimistic mood of the oil markets round, pushing prices higher in London and New York.

Unrest ahead of the presidential election in Nigeria, which has halted 40 per cent of the oil production of the African nation, added to the concern.

But traders were most focused on the Middle East where the market had been betting on a short war with few casualties, causing prices to drop to four-month lows. But that mood was sharply different on Monday.

In London on Monday afternoon Brent crude was up $1.35 at $25.70 a barrel, while the US benchmark traded at $28.15 a barrel, up $1.24 on the day, but still significantly below last month's high of $39.99.

"I think Iraq is the issue on everyone's mind, although Nigeria has been lurking in the background," said Fadel Gheit, analyst at Fahnestock, the US-based securities firm.

Royal Dutch/Shell on Monday said violent unrest in Nigeria had forced it to halt 320,000 barrels per day of its production.

The news came after ChevronTexaco at the weekend closed its main export terminal and France's TotalFinaElf pulled out of an oil storage facility that came under attack. The loss in production from the crisis on Monday totalled 767,500 barrels a day, 40 per cent of the daily exports of Africa's largest oil producer.

For Shell and ChevronTexaco the loss of production has been damped by increased production from other fields and the fact that the Organisation of Petroleum Exporting Countries in the past few months has not prompted Nigeria to restrict its production levels. However, if the disruptions continued over several quarters, they would begin to cut into the companies' earnings, said Mr Gheit.

From a global perspective, the timing of Nigeria's troubles has mitigated their effect. Venezuela, another Opec member whose political strife recently affected its oil production, appears to have managed to restore much of that output more quickly than had expected.

Meanwhile, the approach of spring in the northern hemisphere has reduced demand for heating oil, while Saudi Arabia, the world's largest exporter of crude oil, has sent extra barrels to its main consumers.

Nevertheless, a total shutdown of Nigeria's exports and images of scores of burning oil wells in Iraq would almost certainly lead to a quick rally in prices, analysts said.