Oil prices set new record above $50 on supply fears

LONDON: World oil prices surged into new record territory above 50 dollars a barrel on Tuesday as traders took fright at a multitude of supply threats, including unrest in Nigeria and recent hurricanes.

But feverish markets cooled slightly after Saudi Arabia undertook to increase oil production capacity to 11 million barrels per day (bpd) within weeks. New York’s light sweet crude for November delivery hit 50.47 dollars a barrel in electronic deals, the highest level in the contract’s 21-year history.

Prices later stood at 50.07 dollars per barrel, showing a rise of 43 cents. Traders worried over unrest in major oil producers Nigeria - an important supplier to the US market — and Saudi Arabia, recent hurricanes in the Gulf of Mexico, violence in Iraq and the financial woes of Russian energy giant Yukos.

An armed group accused of trafficking in illegally extracted crude in Nigeria threatened to attack international oil facilities and personnel in the troubled Niger Delta region, a regional government spokesman said.

"It’s all about supply disruptions, not just in the Middle East but also in Nigeria, in the Gulf of Mexico or in Russia," said Commerzbank energy analyst David Thomas.

"On top of that, we have ever-tightening inventories with the further forecast of crude stocks being down again in the US because of the hurricane activity," he added.

In London the price of reference Brent North Sea crude oil for delivery in November hit a new summit of 46.80 dollars in electronic trading, the highest level since trading on the London market began in 1980.

Prices stood at 46.44 dollars in afternoon trading, a rise of 51 cents. Crude oil futures had smashed the 50-dollar barrier for the first time in after-hours New York deals on Monday.

Adjusted for inflation, world oil prices remain far below the levels reached in the wake of the 1979 Iranian revolution when prices surged to about 80 dollars a barrel in today’s money.

But prices have more than doubled from about 20 dollars a barrel in New York at the start of 2002, surging by about 50 per cent since the start of this year.

Prices rose after the Niger Delta People’s Volunteer Force, led by Mujahid Dokubo-Asari, said in a statement late Monday it would launch an "all-time war against Nigeria" from October 1.

It advised oil majors to leave the delta, which pumps all of Nigeria’s 2.3 million barrels per day production.

Good news for a few, bad news for most!

If only the Muslim countries in OPEC agreed to give 20% of extra revenue to poor Muslim countries when prices go above say $30 a barrel, then this would help countries like Pakistan, Bangladesh and Indonesia immensely.

Just to have a look at some figures:

Muslim OPEC oil exports are like 7 billion barrels a year. $50 is $20 higher than the $30 benchmark. So $20 times 0.2 times 7b is $28bn a year.

Just imagine what countries like Pakistan, Bangladesh and Indonesia can do with this money. If this carried on for a few years then they could eliminate all thir debts. The interest payments on debt could be diverted to economic and social development. But the concept of Muslim brotherhood is non-existent these days.