Supply concerns propel prices to fresh highs

Supply concerns propel prices to fresh highs

London (Platts)--11Oct2004

Continued concerns about oil supply from key producing countries propelled
benchmark oil prices to fresh highs Monday as markets shrugged off assurances
from Persian Gulf producers that additional capacity would be used to meet any
demand for extra barrels.

Brent crude futures on London's IPE broke above $50/bbl for the first time while across NYMEX crude futures pressed on through
$53.50/bbl in out-of-hours electronic trade. At 1105 GMT November Brent stood
at $50.15/bbl, up 44 cts from Friday's settle, while November NYMEX crude was
up 25 cts at $53.56/bbl. At the forefront of trader's concerned was a general
strike which started Monday in OPEC member Nigeria. Oil majors with upstream
operations in the country have so far reported no impact on their crude
production or exports, although the strike is scheduled to run for four days.
The strike has been called in response to a recent 25% hike in petroleum
product prices, the seventh such increase since May 1999 when Nigerian
President Olusegun Obasanjo came to power.

The OPEC member country pumps about 2.4-mil b/d of oil and is a key exporter
of valuable sweet crude. In Norway, another 25,000 b/d of crude production was
expected to be shut in by an expanding three-month strike by the Norwegian Oil
Workers Union. Norway's Petroleum Geo-Services was forced to halt operations
at its 25,000 b/d Petrojarl Varg field, adding to the 30,000 b/d Glitne field
output already shut in by the strike. Apart from the Norway and Nigeria
factors, crude was led to fresh highs on NYMEX Friday as tanker offloadings at
the Louisiana Offshore Oil Port were halted due to bad weather in the Gulf of
Mexico. The LOOP was expected to remain closed until Sunday, resulting in
3-mil bbl of lost imports. The problems at LOOP further compounded a slow
recovery in the Gulf of Mexico, which is still supplying below average levels
as a result of Hurricane Ivan last month. Some 475,176 b/d of US Gulf
production still remains shut in, almost 28% of the normal US Gulf output of
1.7-mil b/d.

The supply problems have so far more than offset statements from a number of
Persian Gulf producers including Saudi Arabia that they were willing to bring
on additional spare capacity to meet rising demand for crude. But the oil
ministers of Saudi Arabia, Kuwait and the UAE also said Sunday they believed
there was no justification for current record high oil prices. Saudi oil
minister Ali Naimi blamed tight supplies of sweet crudes and the lack of
refining capacity for sour grades as the causes behind record spikes in world
benchmarks. "There is absolutely no justification for prices at current
levels," Naimi told reporters on the sidelines of an oil and gas exhibition in
Abu Dhabi. He pledged to maintain spare production capacity 1.5-mil to 2-mil
b/d for "the foreseeable future" and to invest in new production capacity
beyond the current 11-mil b/d if need be. The kingdom is producing nearly
9.5-mil b/d and could bring on another 1.5-mil b/d "immediately," he said.

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