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Last Updated:  Wednesday, 26 March, 2003, 23:33 GMT
Nigeria rattles oil markets
Nigerian oil workers
Nigerian oil is crucial to the world market
Oil prices have jumped sharply, partly reversing the 30% falls seen since the beginning of March.

US crude oil prices rose 66 cents to $28.63 while London's benchmark had gained 47 cents to $25.2835 a barrel.

Most traders are focusing on Iraq, potentially the world's second-biggest petroleum producer, where initial hopes of a quick war and return to oil markets have been called into question.

And oil prices have been given further impetus by social unrest in oil-producing regions of Nigeria, which has already removed more than 800,000 barrels per day - more than 1% of global demand - from the market.

The deteriorating situation in Warri, the main city in Nigeria's Delta region, has forced international oil firms such as Shell, ChevronTexaco and TotalFinaElf to reduce output to a trickle.

"Two factors are influencing the markets: the potential for Iraqi oil to remain unavailable for longer than expected and the loss of Nigerian oil exports," said analyst Adam Sieminski in a report for Deutsche Bank.

Ethnic troubles

Nigeria, which produces some 2.1 million barrels per day of oil, is the world's sixth-biggest exporter, and is especially crucial because of the high quality of its oil.

Nigeria is one of the main exporters to the US, which is wary of relying too much on oil from its neighbours in the Americas.

Brent crude oil
The current unrest concerns the Ijaw ethnic group, native to the Delta region, who allege maltreatment at the hands of the security forces.

Nigerian armed forces are reportedly protecting oil facilities and other buildings, after Ijaw militants clashed with members of the Itsekiri tribe.

The Ijaw feel they are under-represented in national politics, and claim that electoral boundaries have been drawn to favour the Itsekiri.

Although oil firms have moved to boost production in other parts of Nigeria, there is little prospect of exports recovering quickly.

And two of Nigeria's four refineries are already almost out of crude oil - something that threatens to exacerbate already chronic fuel shortages.

Fuelling fears

The situation in Nigeria has hit an oil market already jittery over Iraq.

Until this week, there was a perception that regime change in Iraq would be swift and relatively painless, allowing the country to begin exporting on a large scale very soon.

This depressed prices, which had been slowly climbing as tensions rose in the Middle East.

Now, amid military setbacks and burning oil wells, traders are less certain of a rapid turnaround in Iraq, and are now focusing on just how tight the market is at present.

Although the world's main oil producers have expressed mild dismay at the idea of overly high prices, few have the spare capacity to increase production significantly.

And at the same time, stocks of oil in major consuming countries are seen as troublingly low.




SEE ALSO:
Turmoil in Nigeria's oil town
25 Mar 03 |  Africa
Protecting Iraq's oil fields
25 Mar 03 |  Middle East
Oil keeps flowing in spite of war
23 Mar 03 |  Business
Oil prices drop sharply
21 Mar 03 |  Business
Fears of Iraqi 'scorched earth'
21 Mar 03 |  Business
Attacks feed oil price slump
20 Mar 03 |  Business
US oil drops below $30 a barrel
19 Mar 03 |  Business


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