Oil Prices Tick Higher

<a href=news.moneycentral.msn.com>Reuter March 25, 2003 00:11:00 AM ET

SINGAPORE (Reuters) - Oil prices ticked higher on Tuesday, bouncing from last week's four-month lows with traders focused on resistance to U.S. invasion forces in Iraq and tribal violence in Nigeria which has cut its crude output by 40 percent.

U.S. light crude was up 34 cents to $29.00 a barrel at 11:50 p.m. EST Monday, extending Monday's $1.75 jump. London's Brent crude had climbed 31 cents to $26.40 a barrel.

U.S. and British forces faced tough resistance from Iraqi fighters as they opened an assault on Republican Guards defending approaches to Baghdad in a campaign aimed to oust President Saddam Hussein.

Oil fell almost 30 percent last week as traders factored in a short war with little damage to Iraq's oil industry, which pumped 2.5 million barrels per day (bpd) before the U.S.-led assault.

Traders were also relieved that crude supplies from other Gulf producers flowed unhampered by hostilities. The Gulf region pumps about 40 percent of global exports.

But confidence in a quick war waned after the weekend as U.S. and British forces suffered their heaviest casualties so far.

``The market is responding to difficulties in the Iraq campaign. It had priced in the perfect war and had gone so far as building in a victory discount, which is now being eroded,'' Sydney-based oil analyst Simon Games-Thomas said.

NIGERIA STIRS VENEZUELA MEMORIES

A series of bloody clashes in Nigeria forced the closure of about 800,000 bpd of the 2.2 million bpd produced by Western oil firms in Africa's biggest producer.

Ethnic groups in the oil-rich Niger Delta are battling for a greater share of the country's oil wealth.

Nigeria is one of the top six oil exporters to the United States, where fuel supplies have been running at 27-year lows partly due to a Venezuelan general strike, all but cutting off oil exports from the South American country.

Nigeria sent more than 560,000 bpd to U.S. shores last year.

Venezuela, the world's fifth biggest crude exporter before the strike began in early December, supplied about 13 percent of U.S. oil imports. Venezuela's output has been slowly increasing since early February.

The Nigerian outage provided the oil market with an uncomfortable reminder of the Venezuelan strike, David Thurtell, commodities strategist at Commonwealth Bank in Sydney, said.

``Nigeria is pretty volatile at the best of times, but people probably said the same about Venezuela four months ago. If Nigeria is down to one million bpd for a month, supplies will tighten up again,'' Thurtell said.

The Organization of the Petroleum Exporting Countries could make up any shortfall in supply from Nigeria, OPEC's fifth largest producer, cartel president, Abdullah al-Attiyah, said on Monday.

The group has also pledged to make up for the disruption to Iraqi exports.

But OPEC officials have said there is no shortage of oil in world markets so there is no need to increase output. Oil demand usually drops in the second quarter of the year when northern hemisphere winter demand recedes.