Oil Eases as Nigeria Calls Off Strike

<a href=asia.reuters.com>Reuters Tue April 1, 2003 06:37 AM ET By Sujata Rao

LONDON (Reuters) - World oil prices eased on Tuesday after the cancellation of a general strike in Nigeria raised hopes that output shut in the West African producer by ethnic clashes might soon return.

London benchmark Brent futures by 6:20 a.m. EST fell 55 cents to 26.73 a barrel and U.S. light crude dipped 83 cents to $30.21. Prices eased after Nigeria's biggest union called off a three-day strike originally scheduled to begin on Tuesday.

"News of the agreement on the Nigerian strike has given the market some breathing room," one London oil trader said.

While the war in Iraq and continuing ethnic unrest in Nigeria's oil producing regions prevented a steeper price fall, dealers feared a strike would further deepen the crisis in the world's eighth largest oil exporter.

Tribal clashes have shut nearly 40 percent of Nigeria's 2.2 million barrels per day of crude production for more than a week.

Nigerian and Iraqi jitters have helped support oil prices in recent days after the market lost a quarter of its value in the approach to the start of the war when dealers took the view that the war would not last long.

War worries have been countered by world supplies sufficient to meet lower seasonal demand in the second quarter.

"What's driving prices right now is the offset between supply security fears, balanced against expectations of softer demand, which you normally get at this time of the year," said Kevin Norrish, energy analyst at Barclays Capital.

While the war has put a halt to Iraq's 1.8 million bpd of crude exports, OPEC has compensated with increased supplies, with U.S. ally Saudi Arabia in March hitting its highest production level for 21 years

"As far as the war is concerned, we have lost Iraqi supplies but clearly OPEC is still managing so far to make up for that," Barclay's Norrish said.

Global energy demand on the 77 million bpd world market normally drops about two million bpd in the second quarter with warmer weather sets in the United States and Europe.

Demand then picks up again when gasoline consumption for motorists rises in the summer holidays.

Nigeria's high-quality sweet crude is being missed because it is a popular feedstock among U.S. refiners.

Gasline stocks in the United States, are running at a deficit to year-ago levels as the world's biggest consumer of motor fuel gears up for peak demand.

"Looking at where U.S. gasoline inventories are and where prices are, lots will depend now on how soon Venezuela will get its gasoline production back to normal," Norrish said.

Venezuela, struggling to get production back on stream after a crippling opposition strike has said it will restart gasoline exports this week to the United States and expects all refining and exports to return to normal in four to six weeks.

The strike had contributed to extremely tight oil inventories in the West even before the war in Iraq.

Analysts polled by Reuters predict that U.S. data due on Wednesday will show a large crude stock rise after a week of heavy imports.