Crude oil prices surged past the $50-per-barrel milestone in overnight trading in response to the triple threat of turmoil in the oil-rich countries of Nigeria and Iraq and a decline in production in the hurricane-battered Gulf of Mexico.
The price slipped back to $49.90 in New York later in the afternoon after a news service report that Saudi Arabia would increase oil production from 9.5 million barrels a day to 11 million barrels.
Terrorists Have Oil Industry in Cross Hairs (The Washington Post, Sep 27, 2004)
Video: The Washington Post's Justin Blum talks about some of the contributing factors to the rise in crude oil prices.
The breakthrough to $50, while anticipated, underscored the worldwide concern about the impact of rising oil prices on national economies. Stock market indices in Asia and Europe tumbled Tuesday as investors fretted.
In the United States, the Dow Jones industrial average closed below the 10,000 mark Tuesday when the price of oil crept to $49.64 in regular trading Monday.
Oil prices are up 55 percent this year, a trend attributed generally to long-term factors such as extraordinary demand in China and uncertainty in the Middle East.
In recent weeks, the trend has been accelerated by curtailment of production in the Gulf of Mexico and the situation in Nigeria.
More than 30 oil-drilling platforms, about 4 percent of the total, were evacuated in the Gulf of Mexico because of the storms that have ripped through that area this month. On Monday, the U.S. Minerals Management Service said that daily Gulf oil production was 29 percent below normal at about 1.2 million barrels per day with more than 11 million barrels lost since Sept. 13.
In Nigeria, the world's seventh-largest exporter, rebels are battling for control over the wells in the southern Niger Delta and are threatening "a full-scale armed struggle" in the region. Oil companies there, which say that production has been unaffected, have evacuated some workers.
Nigeria's top OPEC official, Edmund Daukoru, told the Bloomberg news service today that he doubts oil output will be slashed, despite the threats from the rebels. He said production remained at normal levels.
"This is not the first time that these threats have been made," said Daukoru. "They are totally unrealistic. There is no basis for it at all on the ground."
Terrorists and insurgents generally are stepping up attacks on oil and gas operations overseas in an effort to disrupt jittery energy markets, destabilize governments and scare off foreign workers, analysts have said. The attacks have been most intense in Iraq, but also have occurred in recent months in Indonesia, Pakistan, India and Russia, as well as in Nigeria.
In many cases, the attacks are orchestrated by groups, often Islamic extremists, seeking to cause economic disruption or steal oil to finance their operations, analysts said. Their targets are sometimes pipelines, tankers and workers in areas with varying levels of security.
The trading that determines oil prices is in the futures markets, where investors buy the right to purchase oil at a future date. The buying and selling prices reflect the traders' view of the trend in prices in the months ahead.
The spike above $50 on the New York Mercantile Exchange came in after-hours trading late yesterday. By mid-afternoon today in Asia, contracts for light sweet crude for delivery in November traded at $50.47 per barrel, up 83 cents from the close of trading Monday in New York.
The rise came despite assurances from the president of the Organization of Petroleum Exporting Countries that its member nations were attempting to calm the markets. OPEC's pronouncements are increasingly failing to have an immediate impact on prices.
Federal Reserve Chairman Alan Greenspan has already noted that rising oil prices may "restrain" economic growth in the United States. Today, Heizo Takenaka, Japan's economic and fiscal policy minister, warned that the expansion of Japan's economy was at risk from a "sustained" rise in oil prices, wire services reported.