Oil Jumps After Attempted Attack on Saudi Processing Plant
Feb. 24 (Bloomberg) -- Crude oil jumped after Saudi Arabian forces repelled a suicide attack on the Abqaiq processing center, which handles about 7 percent of world supply.
At least two bombs exploded after shooting began outside the complex when guards stopped two cars at the gates, Interior Ministry spokesman Mansour al-Turki said in Riyadh. The occupants were killed and two of the guards were injured, he added. The state oil company, Saudi Aramco, said production and exports weren't affected.
``This forces us to focus on the worsening security situation in that part of the world,'' said Michael Fitzpatrick, vice president of energy risk management at Fimat USA Inc. in New York. A facility such as this is ``a very tempting target for any opponent of the regime.''
Crude oil for April delivery jumped $1.86, or 3.1 percent, to $62.40 a barrel at 12:28 p.m. on the New York Mercantile Exchange. Futures rose as high as $62.80, the highest since Feb. 10. The April contract is up $1.11, or 1.8 percent, this week. Prices are up 21 percent from a year earlier.
Prices have tripled the past four years as demand growth coincided with threats to shipments from Nigeria, Iran, Iraq and other exporters. Nigeria has halted almost 20 percent of output because of rebel attacks. Oil surged last month on concern that Iranian shipments would be cut because of a dispute over the country's nuclear research. Iraqi output is down 38 percent from two years ago.
Saudi Security
``There's no question Saudi Arabia is taking this very seriously, and the fact that they actually stopped both of them is probably comforting,'' said Matthew Simmons, chairman of Houston-based energy investment bank Simmons & Co. ``It's certainly not proof that it would never happen again.''
Prices rose on June 1, 2004, after terrorists attacked a compound that houses foreign oil workers in Khobar, Saudi Arabia, killing 22. In May 2004 prices climbed when five ABB Ltd. employees were killed at a petrochemical plant in Yanbu. Output was unaffected by the previous attacks.
``In 2003 there was basically a chain-link fence around this incredible facility,'' Simmons said. ``What's worrisome is that the various bombings that have taken place in these complexes in Saudi Arabia so far have all had the markings of being an inside job.''
Saudi Arabia, which produced about 9.5 million barrels a day last month, accounts for more than half of the Organization of Petroleum Exporting Countries spare production capacity. The kingdom boosted production during the 2003 Iraq war to compensate for lower Iraqi exports. It also raised output in 1979 when the Islamic revolution curbed Iran's output.
Tenterhooks
``This market is already kind of on tenterhooks,'' said Peter Beutel, president of the energy consulting firm Cameron Hanover Inc. in New Canaan, Connecticut. The attack ``comes on the heels of a series of attacks in Nigeria, launched by an insurgent group against oil facilities there.''
Prices rose earlier after rebels threatened to escalate attacks in Nigeria, Africa's largest oil producer. The Movement for the Emancipation of the Niger Delta, or MEND, will resume its offensive ``without further warning,'' Jomo Gbomo, a spokesman for the group, said today. MEND intends to shut 30 percent of the country's production this month.
Royal Dutch Shell Plc's venture in Nigeria has halted 455,000 barrels a day of production following attacks by militants on the Forcados export terminal and the Chanomi pipeline in the Niger River delta on Feb. 18. The rebels also kidnapped nine foreign oil workers from a Willbros Group Inc. boat near the terminal.
``This is a major ratcheting up,'' said Frank Verrastro, director of the Center for Strategic and International Studies energy program in Washington. ``The rebels are bolder and more organized than in the past. They appear to be better armed and more disciplined than the army.''
Upsurge of Violence
Iraq has imposed a curfew in Baghdad and three nearby provinces in a bid to end violence between Sunni and Shiite Muslims sparked by a bomb attack on a Shiite shrine. The bombing prompted warnings of a civil war.
Iraq, which has the world's third-biggest proved oil reserves, produced an average 1.53 million barrels a day last month, the lowest since August 2003. Iraq produced 2.48 million barrels a day in February 2003, before the U.S.-led invasion. The country's production and exports have been limited because of sabotage to pipelines and other oil facilities.
Airlines Barred
Venezuelan President Hugo Chavez will bar Continental Airlines Inc. and Delta Air Lines Inc. from flying to the country until Venezuelan carriers are allowed to expand service to the U.S. Venezuela's relations with the U.S. have deteriorated since Chavez was elected president in 1998.
Chavez has said the U.S. is seeking to assassinate him, while U.S. officials have said Chavez is a threat to regional stability. Venezuela, the world's fifth-largest oil exporter, was the fourth-biggest source of U.S. imports last year.
``The lack of spare capacity has made us vulnerable to any threat to supply over the last few years,'' Verrastro said. ``It's important to keep in mind that the biggest single loss of oil output recently was in the Gulf of Mexico.''
Oil rose to a record $70.85 a barrel on Aug. 30, the day after Hurricane Katrina made landfall on the U.S. Gulf of Mexico coast. The storm shut production rigs, platforms and refineries.
Brent crude oil for April settlement rose $1.65, or 2.7 percent, to $62.19 a barrel on London's ICE Futures exchange.
To contact the reporter on this story:
Mark Shenk in New York at mshenk1@bloomberg.net
Last Updated: February 24, 2006 12:48 EST
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