Nigerian rebels' threat of war pushes oil price above US$50

By ELLEN READ AND AGENCIES


Oil prices soared to a 21-year high yesterday to more than US$50 ($76) a barrel as the threat of war in Nigeria sparked fears of a shortage in the Northern Hemisphere.

Some believe the latest rise could see oil rising as high as US$60 a barrel. Such a move could see New Zealanders paying $1.30 a litre for 91 octane fuel.

The 71US cents rally to $50.35 followed Nigerian rebels warning oil companies to shut down production in the Niger delta before they declare an all-out war on October 1.

Nigerian unions also served a 14-day ultimatum to the Government on Monday to reverse a 15 per cent fuel price rise or face an indefinite nationwide strike.

The supply disruptions in Nigeria, Opec's fifth-largest producer, comes amid worries of extended disruption to oil flow from Iraq, where pipelines have been under intermittent attack for some time. The ongoing Yukos drama in Russia is also being seen as a brake on supplies in an era of the fastest demand in growth in 24 years.

Shell New Zealand spokesman Simon King told the Business Herald yesterday that pump prices had not been put up - yet.

"We monitor the situation every day. Oil prices are at a high level but the New Zealand dollar is also strong and that has a cushioning effect."

Shell - which last increased prices on Friday by 1 cent per litre - is selling 91 octane, the most popular petrol, at 120.9 cents per litre.

The local economy will also be affected - directly via less money in consumer pockets and indirectly (through trading partners).

"[The stronger currency] is a double-edged sword in that we're not paying so much for our petrol but it doesn't help the export sector of the economy," Westpac senior economist Nick Tuffley said.

New Zealand relies mainly on Dubai crude, which is usually priced around US$5 below US light crude.

In the year to March 31 New Zealand used almost 35 million barrels of oil, around two-thirds imported.

"This is the perfect storm. These are the perfect ingredients for a real explosion in crude prices. There is no slack in the system. I can see this going to US$52," said Tony Nunan at Mitsubishi Corp in Tokyo.

Some see it going even higher.

"I think you're going to see US$60 before you see US$40," said Boone Pickens, who oversees more than US$1 billion in energy-related hedge funds in Dallas.

US fuel inventories are already at low levels after hurricanes in the oil-producing Gulf of Mexico delayed oil shipments to the world's biggest consumer and disrupted offshore production. US crude stocks are running at a 13-million-barrel deficit compared with a year ago.

The Bush Administration loaned refiners about 1.7 million barrels of oil from the nation's emergency stockpile last week following the hurricane delays, but has said it would not use the Strategic Petroleum Reserve (SPR) to ease prices.

Opec president Purnomo Yusgiantoro said Opec was powerless to stop oil's relentless rise.