War worries return
<a href=www.sfgate.com>OIL: Prices rise as war outlook darkens Verne Kopytoff, Chronicle Staff Writer Tuesday, March 25, 2003
Oil prices surged Monday for the first time in eight trading sessions as fears increased over a prolonged Iraqi war and turmoil in petroleum-rich Nigeria.
Traders were reacting to news over the weekend that the U.S.-led invasion of Iraq was encountering stiff resistance. If it continues, Iraq's oil industry may take longer to return to normal production than expected, analysts said.
In addition, pumping in Nigeria has been significantly cut because of sporadic battles between ethnic militants and the Nigerian government. A handful of companies, including ChevronTexaco of San Ramon, have curtailed production in that West African nation and evacuated employees.
"The odds of a very quick resolution in Iraq fell over the weekend, or at least perception," said George Beranek, manager of market analysis for PFC Energy, a consulting and research firm in Washington. "Nigeria is also part of it."
Crude prices on the New York Mercantile Exchange for May delivery jumped Monday to $28.66, up $1.70. They had declined nearly 25 percent over the past couple of weeks from near a 12-year high of $37, as traders anticipated a quick finish to the Iraqi war.
The volatile oil market has affected consumers, as increases in oil prices naturally lead to higher gasoline prices. On Monday, a gallon of unleaded fuel in San Francisco sold for an average of $2.27, just a penny shy of the all- time record set last week, according to AAA of Northern California.
Traders are worried about how much control U.S.-led forces have over the oil fields of southern Iraq. Officials previously said they had captured the fields. Now they are indicating that Iraqis are still a threat there.
Several oil wells in southern Iraq are still burning. A major oil field in northern Iraq has yet to be captured.
Before the war, Iraq exported an average of about 2 million barrels of crude a day. Those exports essentially stopped after the departure of the United Nations workers who oversaw Iraq's oil-for-food humanitarian program.
Also contributing to higher oil prices, analysts said, is unrest in Nigeria.
ChevronTexaco's Nigerian subsidiary said Sunday that it has evacuated 1,600 employees and cut production by 440,000 barrels a day in the West Niger Delta. ChevronTexaco has a 40 percent stake in the subsidiary.
Royal Dutch/Shell's Nigerian subsidiary also has cut production. Nigeria is the fifth-largest source of oil imports in the United States, supplying 5.9 percent of total imports.
Nigeria's oil woes come on top of a strike in Venezuela that damaged the petroleum industry there and caused world crude prices to jump. Venezuelan production has recovered somewhat since the strike began in December, but it is still short of normal levels.
John Kingston, global director for oil at Platt's, an energy information service in New York, said world oil inventories are tight and will probably remain that way in the near future. He added that the Organization for Petroleum Exporting Countries may actually cut production after the Iraq war is over because they fear a glut in the market.
"You've got to assume that the market is going to remain tight," Kingston said.
Also on Monday, Sen. Barbara Boxer, D-Calif., introduced a bill that would require the Federal Trade Commission to investigate any time gasoline prices increase by more than 20 percent in a three-month period. She has already asked the FTC to look into the current jump in prices for evidence of illegal manipulation.
A state probe into high gasoline, diesel and natural gas prices called for by Gov. Gray Davis is under way. The results are due this week.
E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.