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Oil Charges Over $50 on Nigeria Threat

THE NEW YORK TIMES/REUTERS: Oil Charges Over $50 on Nigeria Threat

“Oil prices raced to new record highs above $50 on Tuesday as rebel threats against Nigerian oil facilities threatened to inflict further strain on global supplies.”: “Shell has already cut 30,000 to 40,000 bpd due to security curbs.: “U.S. crude stocks have fallen for the last eight weeks and are running at a 13 million barrel deficit compared with a year ago, at a time when they should be building ahead of winter.”

By REUTERS

Published: September 28, 2004

Filed at 8:08 a.m. ET

LONDON (Reuters) – Oil prices raced to new record highs above $50 on Tuesday as rebel threats against Nigerian oil facilities threatened to inflict further strain on global supplies.

U.S. light crude touched a high of $50.47 a barrel and at 1120 GMT, the contract was trading at $50.03, up 39 cents. London’s Brent crude set a new peak at $46.80 a barrel, before easing to $46.43, up 50 cents.

Oil has grabbed the financial market spotlight this year, surging 55 percent as rising consumption and the fallout from years of underinvestment in supply infrastructure tempts heavy buying from big-money funds.

Producers are pumping at just about full tilt to feed demand as China’s economic expansion powers the fastest growth in 24 years. Worries about supply security in Saudi Arabia, Iraq and Russia have magnified the price surge.

Prices hit new highs after rebels fighting for sovereignty in Nigeria warned oil companies to shut production in the Niger delta before they declare an all-out-war on Oct. 1.

Companies working in the delta shrugged off the threat.

Royal Dutch/Shell and Italy’s Agip, a unit of ENI, said they saw no reason to stop oil operations. Shell has already cut 30,000 to 40,000 bpd due to security curbs.

The big question now is whether prices will push higher still. “The loss of a major supply source for several weeks could see prices move well above $50,” said James Burkhard of Cambridge Energy Research Associates.

“If fear of a supply disruption recedes and demand growth moderates and supply grows, prices could slip to the low $40 range,” Burkhard added.

So far global economic growth has withstood the impact of higher energy costs.

German Finance Minister Hans Eichel warned ahead of Friday’s Group of Seven meeting in Washington that global growth would be at risk if oil prices remained at current levels.

In real terms, stripping out the impact of inflation, oil prices are now near levels hit during the Arab oil embargo of 1973-4, though much lower than the record $80 annual average high following the 1979 Iranian revolution .

European Union Energy Commissioner Loyola de Palacio said the pressure on prices would ease after the U.S. presidential election in November.

“I think clearly there is pressure because of the American elections,” de Palacio said.

OPEC, which controls more than half of global crude exports, is producing about 30 million bpd, levels not seen since the late 1970s.

OPEC president Purnomo Yusgiantoro said on Tuesday the group was powerless to bring prices down. It raised production quotas with effect from November 1, but the move had little impact as OPEC is already pumping well over official limits.

While the group says it has 1.5 million bpd of spare production capacity, the extra crude is not of the quality best suited for transportation fuels.

“At the moment there’s nothing we can do. OPEC has spare capacity, however, whatever we do there is no sensitivity in the market,” Purnomo, also Indonesian oil minister, told Reuters. OPEC’s next meeting is scheduled for December 10.

A string of hurricanes in the oil-producing Gulf of Mexico have accelerated the price rise by delaying shipments and disrupting offshore production and refinery operations.

U.S. crude stocks have fallen for the last eight weeks and are running at a 13 million barrel deficit compared with a year ago, at a time when they should be building ahead of winter.

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