Oil Prices Up After Nigeria Violence

Oil prices rose Thursday after reports that OPEC plans to cut output to counter falling prices and as an attack against Nigerian oil workers and facilities renewed concerns of supply disruptions.

By midday in Europe, light, sweet crude for November delivery rose 21 cents to $59.62 a barrel in electronic trading on the New York Mercantile Exchange.

Prices hit a seven-month low this week and continued to fall Wednesday after U.S. government data showed rising inventories of crude, gasoline and heating oil. But the news of violence in Nigeria's oil-rich southeastern delta brought buyers back into the market, as did news reports that OPEC may reduce output to halt a decline in prices.

Analysts said the oil market may have already reached a bottom in the high $50s and the Nigeria violence was just another catalyst to readjust prices.

In Nigeria, a militant group claimed Wednesday it killed nine soldiers and captured two government gunboats at a pumping station belonging to a Royal Dutch Shell PLC subsidiary. The army gave no casualty figures and it was not possible to confirm the militants' claim.

In a separate incident in Nigeria, a convoy carrying soldiers and supplies for Agip, a subsidiary of Italian oil company Eni SpA, was attacked, Brig. Gen. Alfred Ilogho said. Eni spokesman Gianni Di Giovanni said late Wednesday the company didn't have information about the attack.

Nigeria's light, sweet crude oil is particularly desirable for the production of transportation fuels and any loss of output has the potential to spook the market.

The west African nation is the source of about 5 percent of the oil imported by the United States, putting as the fourth largest foreign source behind Canada, Saudi Arabia and Venezuela.

Well-armed and organized rebel groups in the delta region regularly launch attacks against oil platforms and offices, kidnapping foreign workers and engaging in gun battles with local security personnel and soldiers.
Most hostages taken by the groups are eventually released unharmed in exchange for money or concessions on the part of big oil companies — usually Western owned — that operate in the delta.

Despite Nigeria's vast underground resource,s and the billions of dollars made exporting them every year, the vast majority of the country's population lives in poverty.

Often attributed to a corrupt government, this huge gap between resources and individual wealth creates support for the rebels.

An unsourced Financial Times report on Thursday said the Organization of Petroleum Exporting Countries has informally agreed to cut output 4 percent in coming weeks to defend the $50-55 per barrel price range.

Dow Jones Newswires, citing an OPEC governor, said OPEC ministers agreed to cut 1 million barrels a day from its current oil production levels, with Saudi Arabia cutting 300,000 barrels per day, effective as soon as possible.

Saudi Arabia's ambassador to the U.S. said Wednesday that he did not expect OPEC to hold an emergency meeting to discuss prices ahead of its scheduled Dec. 14 meeting, despite the recent decline in prices.

Prince Turki said Saudi Arabia's intent was to "bring down prices to reasonable levels."

While some OPEC nations, including Nigeria and Venezuela, have already voluntarily cut output, Purvin & Gertz analyst Victor Shum said the body would likely adopt a "wait and see" attitude until their December meeting.

"They have some time to see if the market bottoms out and may not need to formally do anything," Shum said.

Soothing the market was the weekly report from the U.S. Energy Department saying that U.S. inventories of crude oil rose by 3.3 million barrels last week to 328.1 million barrels, or 6.7 percent above year-ago levels. Gasoline inventories rose by 1.2 million barrels to 215.1 million barrels, or 9.6 percent more than last year.