Sun, Jun 04, 2006 - Page 10 News List

Kidnappings drive oil prices up

TENSION The latest in a series of abductions of Westerners from oil rigs off the coast of Nigeria, combined with the Iran question, propelled oil to US$72.33 in New York


World oil prices shot higher on Friday after the kidnapping of eight Westerners working on an offshore oil rig in Nigerian waters and on persistent tensions over Iran, analysts said.

Traders also absorbed an announcement by the OPEC that it would maintain oil output at 28 million barrels per day.

New York's main contract, light sweet crude for July delivery, jumped US$1.99 to close at US$72.33 per barrel. In London, Brent North Sea crude for July delivery surged US$1.64 to US$71.03 per barrel.

Eight Westerners -- six British, one American and one Canadian -- were kidnapped on Friday as they worked on an offshore oil rig in Nigeria, Africa's biggest producer of crude.

Nigerian police confirmed the abductions, the latest in a series, saying they were hunting for the perpetrators, and no claim of responsibility or demands had been made.

"It's probably a combination of the Nigerian situation but I think there's also continued concern about the US offer to Iran [on negotiations over Tehran's nuclear program], and whether that offer will be accepted or not," said Jason Schenker at Wachovia Securities.

"We're likely to see continued volatility as long as the disruptive events remain in the forefront," he said.

The market reversed course after sharp losses on Thursday after data from the US Department of Energy showed a rise in US energy reserves, and with some optimism over a resolution of the Iran crisis. But those concerns quickly returned to the market.

"With Iran continuing to state that its nuclear enrichment program is `non-negotiable,' we have doubts that a solution is within reach and continue to see Iranian issues as a major source of upside risk in oil prices over the rest of the year," Barclays Capital analyst Kevin Norrish said.

Market watchers say that Iran -- the world's fourth-largest producer of crude and OPEC's second-biggest member -- might cut oil exports in the face of sanctions.

Six world powers agreed on Thursday on an incentive package of benefits if Iran suspended its nuclear fuel work, which has raised fears of weapons development, but threatened penalties if Tehran refuses to comply.

The meeting of foreign ministers from the UK, Russia, China, France, Germany and the US was held on Thursday in Vienna.

However, market expectations are that Iran will reject the package, paving the way for possible UN sanctions over its disputed nuclear ambitions.

Iran appeared determined to make nuclear weapons and could develop such an arsenal as early as 2010, US National Intelligence Director John Negroponte said in an interview broadcast in the UK on Friday.

"We don't have a clear-cut knowledge but the estimate we have made is some time between the beginning of the next decade and the middle of the next decade they might be in a position to have a nuclear weapon, which is a cause of great concern," the US spy chief told BBC radio.

Elsewhere OPEC ministers, meeting in the Venezuelan capital of Caracas, agreed on Thursday to keep oil output at a 25-year high -- but said they would watch for any signs of a global slowdown that might merit a cut in the months ahead.

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