Oil surges to 3-1/2 month high

[notiCIas]

Oil surges to 3-1/2 month high

Crude soars on threats of oil industry attacks by Nigerian militants, lingering Iran supply fears.

January 17, 2006: 6:55 AM EST


LONDON (Reuters) - World oil prices hit a three and half-month high Tuesday after militants said they would broaden attacks on Nigeria's oil industry, threatening to cut deeper into supplies from the world's eighth biggest exporter.

U.S. crude surged about 2 percent to $65.53 a barrel in electronic trading after Monday's U.S. holiday, then eased to $65.29, up $1.27. Oil is within sight of its $70.85 record of Aug. 30, fired by Nigerian violence and Iran's duel with the West over its nuclear program.


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London Brent crude was up 94 cents to $64.12 after rising 58 cents on Monday when European markets were open.

Tuesday's push above $65 came as militants behind a spate of kidnappings and attacks on oil facilities in the West African nation's oil-rich Niger Delta threatened to use more aggressive tactics against oil workers and their families beginning Feb 1.

"Nigeria's escalating problems... are boosting prices. Nigeria puts almost 2.5 million barrels of crude into the market daily -- around three percent of global oil output," said analyst Tobin Gorey of the Commonwealth Bank of Australia.

The country's biggest foreign operator, Royal Dutch Shell, has already evacuated staff from some facilities and scaled back output as violence escalated over the past week.

"Nigeria has always been a difficult place and now they have targeted the offshore platforms. They've never done that before. Obviously, that's very dangerous," said Craig Pennington, an analyst with investment bank Schroders.

Militants' demands
Kidnapped oil workers listed the militant group's demands as local control of the Niger Delta's wealth, payment of $1.5 billion by Shell to the state government for pollution, and the release of ethnic leaders.

Crude prices in New York have risen more than seven percent since the start of the year as doubts have grown about the reliability of supplies from Nigeria and Iran, and Iraq's oil industry struggles to get back on its feet.

Strong buying by big investment funds has added impetus.

The United States and the European Union say EU-led talks with Iran have failed to quell suspicion that Tehran is seeking a nuclear bomb, despite its denials, and it is time the U.N. nuclear watchdog agency sent the case to the Security Council.

Blanket sanctions such as an oil embargo are deemed highly unlikely, but OPEC's second biggest exporter has said any crackdown could drive up world oil prices and has not ruled out using oil for leverage.

If Iran uses its oil exports as a retaliatory political weapon and ceases exports of around 2.4 million barrels per day (bpd), the rest of the world's spare capacity would struggle to cover the deficit, especially with supply disruption in Nigeria.