World Of Oil Worries

Oil futures traded near last week's record closing highs Monday amid assurances from Middle East countries that they were committed to keeping the market well supplied and as a strike began in Africa's largest exporter of crude.

Traders were only mildly worried about potential supply problems stemming from the strife in Nigeria, though they are keeping a watchful eye on the slow recovery of production in the Gulf of Mexico following hurricanes and the amount of heating fuel available in the United States as winter approaches.

Concerns about Russian output persist, too, as oil giant Yukos struggles to repay a multibillion-dollar bill for back taxes.

Crude for November delivery traded at $53.30 a barrel at midday, down 1 cent from its record settlement price of $53.31 set Friday on the New York Mercantile Exchange. Prices had pushed as high as $53.67 earlier in the day.

On London's International Petroleum Exchange, Brent crude futures for November delivery rose to $50.18 per barrel.

While oil prices are about 80 percent higher than a year ago, they are $27 below the peak inflation-adjusted price reached in 1981.

Excess available output is scant, with global production capacity only about 1 percent above the daily supply of 82 million barrels. Demand rose faster than expected this year, particularly in China and India, catching many in the industry off guard.

"For most of the last decade, the world has had a spare capacity buffer of around 3 to 5 million barrels per day, but no more," Energyasia.com in its latest research report.

On Sunday, Treasury Secretary John Snow said he had received assurances from Arab oil-producing nations that they would attempt to lower crude prices by increasing supply as the Northern Hemisphere winter approaches.

The Organization of Petroleum Exporting Countries, which includes the world's largest producer Saudi Arabia and other key Middle East exporters, has already raised its daily production quotas by 2.5 million barrels a day this year to just under 30 million barrels.

But traders remain wary, because previous OPEC efforts to boost output have involved crude with a high-sulfur content, which is less desirable for refiners.

Brokers described the $50 a barrel mark as an important psychological milestone and said ongoing supply fears indicated further increases are likely.

Former Malaysian leader Mahathir Mohamad, now an adviser to his country's national oil company Petronas, said Monday the world did not heed warnings after earlier global shocks, like the one in 1981.

Mahathir took a potshot at U.S. consumption, saying that "instead of driving big cars, they now drive big vans." Malaysia is Southeast Asia's second largest oil producer after Indonesia.

The United States has about 5 percent of the world's population and consumes roughly 19 million barrels of oil a day, or 25 percent of the world total.

The market is also closely monitoring the slow recovery of production in the Gulf of Mexico where around 475,000 barrels a day remain frozen because of damage caused by Hurricane Ivan last month. A major problem is that 10 large pipelines in the region that transport oil and natural gas remain shut down, according to the federal Minerals Management Service. Six production platforms awaiting repairs remain shut down, the agency said.

The market is also nervously watching events in Nigeria, where a nationwide strike to protest higher fuel prices began Monday, shutting down most of Lagos, Nigeria's commercial capital. Militants smashed car windows to keep people home and streets nearly void of traffic except soldiers and anti-riot police in armored vehicles.

A spokesman for London-based Royal Dutch/Shell Group, which produces nearly 1 million barrels per day in Nigeria, said the strike has not hampered its output.

"It may wind up being something bigger, we just don't know yet," said Ed Silliere, vice president of risk management at Energy Merchant Corp. in New York.

The strike takes place amid threats by a popular rebel leader to take back the rich Niger Delta oil fields if peace talks with the government fail. Nigeria pumps about 2.5 million barrels per day and is the fifth-largest source of U.S. imports.

In the most recent month, Nigeria was the fifth-largest importer of crude oil into the United States, behind Canada, Saudi Arabia, Mexico and Venezuela (ahead of Iraq, Angola, Algeria and Kuwait). With 31,600 gallons imported, Nigeria represented almost 10 percent of the total U.S. monthly imports.

In Russia, a court ruled Monday that Yukos must pay $1.34 billion in fines and penalties as part of a $4.1 billion back-tax claim for 2001, raising the company's total liabilities to about $7.5 billion. The company has warned repeatedly that its production could suffer as a result of the government's aggressive pursuit of the back taxes.