By Steven Mufson
Washington Post Staff Writer
Tuesday, May 6, 2008

Here's how a small group of militants in West Africa can help keep an issue alive in presidential politics in Indiana and Washington.

On Sunday morning, an e-mail arrived from a representative of the Movement for the Emancipation of the Niger Delta (MEND) announcing that 36 hours earlier, the group had overrun a "heavily fortified" Royal Dutch Shell oil installation in Nigeria's Bayelsa state.

When commodity markets opened in New York yesterday, crude oil prices pierced the $120-a-barrel threshold for the first time before settling at $119.97, a record.

The $3.65 jump in crude oil prices helped sustain the intensity of political debates about gasoline prices, which yesterday stood at a national average of $3.61 a gallon -- a penny shy of a record and up about 55 cents this year. In an interview with ABC's "Good Morning America" yesterday, President Bush said that the price of gasoline troubled him "a lot" and that rising gasoline prices were "like a tax on the working people."

But however troubled Bush and other political leaders may be, oil experts said the small cushion of excess capacity around the world could mean a continuation of the recent volatility of oil prices at a high level. That could result in a long, hot summer for drivers, and it could leave the domestic U.S. politics of gasoline hostage to outside events.

"This continues to be a crisis-prone market, and that is reflected in the oil price," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "The fundamental fact is that it's a tight market."

Concern about Nigeria's output, which has been curtailed recently by labor disputes and militant attacks, raised new fears about the availability of world oil supplies. That concern fed into a rally in oil prices that started on Friday after federal jobs data raised expectations that the U.S. economy would be stronger than expected and that as a result, U.S. demand for oil would be more robust than expected.

"May is the lowest-demand month of the year, so it's really important that we see some buildup of stocks ahead of the summer," said Adam Robinson, an oil analyst at Lehman Brothers. "And here you have a couple of factors chipping away at that seasonal cushion."

Financial considerations continued to play a role in the high level of oil prices, oil experts said.

Robinson said that after 15 months of steady increases in oil prices, traders were reluctant to sell crude oil short, a financial method of betting on a price decline.

"There's nobody waiting at retail stations to fill up cars, and there's no problem getting crude to refineries," said Rob J. Routs, executive director of oil products at Royal Dutch Shell. "The subprime crisis has redirected a lot of money into commodities." That, he added, was creating a "speculative premium."

Oil prices "have changed dramatically" over the past year, Routs said, "certainly beyond our expectations."

But supplies are still important, oil experts say. Adam Sieminski, chief oil economist at Deutsche Bank, said declines in oil output in the United States and Europe and a slowdown in the growth of oil production in Russia were making it hard for world supplies to keep pace with rising consumption.

He said that even with the stagnant oil consumption in industrialized nations, world oil consumption would grow about 1.2 million barrels a day. And even with increased oil output in some nations, he predicted "rising dependence" on the Organization of the Petroleum Exporting Countries.

One of those OPEC countries is Nigeria, which produces a high-quality crude oil especially well-suited for U.S. refineries that produce large amounts of gasoline. Production in Nigeria has been growing from offshore oil fields, but militants continue to cripple much of the output that used to flow from wells in the sprawling Niger River delta.

Shell's share of the suspended production during the first quarter was 156,000 barrels a day, the company's chief financial officer, Peter Voser, said in a conference call last week. That rose to 164,000 barrels a day before the attacks over the weekend. Based on Shell's share of overall production, Voser's estimate suggests that Nigeria's exports are at least 550,000 barrels a day less than the country's capacity.

Attacks over the past couple of years had targeted operations in the western part of the delta, and Voser said Shell was restoring some of those facilities when MEND launched attacks in the eastern part of the delta early this year.

Although one of its fighters died, MEND, a loose umbrella of groups, dismissed the Nigerian military gunboats and soldiers guarding the installation as "mere ornaments." The group's e-mail said, however, that it was "seriously considering" a temporary ceasefire appeal by presidential candidate Sen. Barack Obama (D-Ill.).

A senior foreign policy adviser to Obama said he had not commented recently on the situation in the Niger delta, though he had urged an end to the violence.