Oil prices surge on war fears

The Australian From correspondents in New York April 01, 2003

OIL prices gushed higher overnight, fuelled by fears of a bloody, drawn-out war in Iraq and fresh reports of unrest in major oil exporter Nigeria. New York's benchmark light sweet crude contract for May delivery advanced 88 cents to $US31.04 a barrel.

The price of reference Brent North Sea crude oil for May delivery rose 81 cents to $US27.16 a barrel.

"The market is up on constant war talk. There is a pretty high level of concern," said AG Edwards market analyst Bill O'Grady.

But there had been no major attacks by Iraq on its neighbours, and no large terrorist attack, he added.

"It leads me to believe ... Gulf oil production is pretty safe right now," O'Grady said. "What the market is missing is that from the oil point of view there is really not a whole lot more risk."

The White House said it saw no evidence to date that the United States needed to tap its strategic petroleum reserve to offset supply disruptions stemming from the war against Iraq.

"There is no change in the status of the strategic petroleum reserve. It remains an issue that gets reviewed on a regular basis to determine whether or not a severe supply disruption has occurred," said spokesman Ari Fleischer.

"We have seen no evidence to date of a severe supply disruption, nevertheless the experts continue to monitor it," he told reporters.

Traders were trying to sift through the reams of war news to work out how the campaign in Iraq was really progressing, said GNI trader Robert Laughlin in London.

"The interest is very much . . . in terms of the propaganda machine over the weekend, as the Americans still say the war effort is being successful despite the fact there appears to be a mini-ceasefire," he said.

Ethnic unrest in Nigeria, which has reduced the country's oil exports by more than a third, was further fuelling concern, analysts said.

Political thugs attacked an opposition rally in Nigeria's troubled Niger Delta at the weekend, driving activists into a river and hacking them with machetes, an eye-witness said in Lagos.

Nigeria is due to go to the polls for general elections on April 12 and for presidential and state gubernatorial votes on April 19, the first test of the country's fragile democracy since the 1999 return of civil rule.

Over the past two weeks a violent uprising by ethnic Ijaw militants in the western Delta, south and west of the city of Warri, has led to scores of killings and crippled the region's oil industry.

"The market is up because people are still worried about the situation in Nigeria, where there was more violence over the weekend," said Deutsche Bank analyst Adam Sieminski in London.

"It means that the 800,000 barrels a day of production that was lost last week is still out, in contrast to statements on Friday and Saturday suggesting that a compromise between ethnic groups and the government had been reached," he added.

For the moment, there were few real concerns about supplies, but more bad news could send prices soaring, Sieminski said.

"There is still enough oil coming from Saudi Arabia and even Venezuela to keep the market supplied, but with Iraq out and the conflict in Nigeria still continuing, the market is tightly balanced, and if anything else should go on, we would see higher prices," he said.