Iraq and Nigeria keep oil prices high

28 March 2003
Volatility continued to haunt the oil markets in the week after war broke out in Iraq, with prices reacting to every scrap of news from the frontline. As the first few days of seemingly swift coalition advances with minimal casualties gave way to US prisoners being paraded on Iraqi television and fierce resistance in the south, prices did an about-turn, heading back up to $30 a barrel. Brent rose to $27.23 on 25 March, up from $26.67 on 20 March, the day after war began. 'Suddenly, bets on a quick, clean war look less safe,' says a London-based analyst.

Despite growing concerns that the US-led coalition was in for a long war, the oil market was able to take some comfort from the fact that its worst-case scenario had failed to materialise. The southern Rumaila oil fields were secured with only seven oil wells set alight. Kuwait's production remained unaffected by the fighting further north, despite Iraq firing a series of missiles, apparently aimed at the Shuaiba industrial zone where most of its refineries and export terminals are located.

Nevertheless, fears that permanent damage could be inflicted on the oil-rich Kirkuk area in northern Iraq remain, given Turkey's decision to send troops into Kurdish-controlled Iraq and the longstanding tensions in the region.

The loss of some 2 million barrels a day (b/d) of Iraqi exports has not caused any shortages, as a fall in northern hemisphere demand, the restoration of Venezuelan production and the arrival in the US of January Saudi shipments have kept the markets well supplied. US crude stocks on 26 March were 3.7 million barrels higher than the previous week at 273.9 million barrels. 'I am confident that increased supplies already on the market and the response of OPEC. will ensure that our economy will have the ample supply of energy it needs,' US Energy secretary Spencer Abraham said on 20 March.

Worries about Nigeria, OPEC's fourth largest producer, are increasing, however. As unrest escalates in the volatile Niger Delta region, the oil majors began evacuating staff on 18 March and almost 40 per cent of Nigeria's 2.2 million-b/d output has been shut off. The Royal Dutch/Shell Group, the country's biggest producer, has shut down pumping stations, the US' ChevronTexacoshut its main export terminal and France's TotalFinaElfclosed an oil storage facility. Militants of the Ijaw ethnic group are fighting government security forces over demands for greater political representation and have threatened to target the oil industry, the revenues of which protesters want deployed for the benefit of the local population. The violence appears destined to worsen ahead of April's general and presidential elections.

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