Renewed unrest spikes oil prices

As oil prices rebound, the Niger Delta violence poses fresh pressure on prices, even as the impact of the latest fighting between the Nigerian military's Joint Task Force and the militants remains intense.

Global oil prices fell more than a dollar to below $61 a barrel on Thursday, after hitting a six-month high in the previous session on Wednesday. US crude for July delivery was down $1.37 a barrel at $60.67 by 0927 GMT. It had settled at $62.04 a barrel, before trading up to a six-month high of $62.26 in post-settlement activity. London Brent was down $1.35 at $59.24.

Reprisals between government troops and militants in the nation's oil-rich Niger Delta, is believed to have helped push oil prices to a new six-month high, after the Movement for the Emancipation of the Niger Delta (MEND), reportedly declared an all-out offensive against oil companies and government troops and claimed responsibility for two oil and gas pipelines blown up in the region.

According to Angela Henshall, an energy reporter at Dow Jones Newswire, "If the security situation in the Delta deteriorates further, values for cargoes of physical Nigerian crude traded on a daily basis are expected to rise-especially the key benchmark grades Bonny Light and Qua Iboe in the next few weeks.

The latest attacks seem to be concentrated in the West of the Delta, traders are saying we would see more significant price reaction if the Escravos main line was hit."

Many analysts fear that the current offensive could push prices further upward. However, Ayo Teriba, an economist and CEO of Economic Associate, a Lagos-based economics consulting firm, disagrees, saying, "The fact that prices are rising at a time that government is seeing more of what it's doing, in-terms of military action in the Niger delta, does not mean that one caused the other.

I don't subscribe to the view that what is happening in the Niger Delta is driving up oil prices. I think what is lifting oil prices is more of the dynamics of demand and supply rather than the military offensive."

Oil prices have been on an upward trend since mid-April, as the market has tracked a rally in equities underpinned by hopes of an economic recovery. Prices recovered from $32.40 in December, after a plunge from record highs of above $147 in July, 2008.

While concern in the oil market about real or threatened supply disruptions is overshadowed by the global economic crisis, which eroded global oil demand, analysts are keeping an eye on the Niger Delta violence.