Oil prices soared to a new record on Tuesday, breaking through the psychologically important $50 (€40.67) per barrel mark. Experts say the new high was pushed by political instability in Nigeria.
Instability in the oil-rich Niger delta is partly to blame for record prices
Crude oil futures remained above $50 dollars a barrel in Asian trade on Tuesday after breaking through the key psychological barrier as concerns over supply continued to dominate the market, dealers said.
At 2:30 pm (0630 UTC), New York's reference contract, light sweet crude for November delivery was at $50.42 a barrel, up from the record closing high of 49.64 in New York on Monday. It hit $50.47 in an intra-day high.
Analysts said factors driving prices up include unrest in Nigeria and Saudi Arabia, hurricanes in the United States, continued violence in Iraq and the legal and supply woes of Russian energy giant Yukos.
Nigerian rebels threaten war
Nigeria is the world's seventh largest oil exporter, pumping out 2.3 million barrels per day. Nigerian rebels have warned oil companies to shut down production in the Niger delta, or face "all-out war" starting on Oct.1. They said anyone assisting the state would be considered an enemy.
The rebels are seeking to force political reforms and independence for the oil-rich, yet impoverished Niger delta.
Kurt Barrow, a Singapore-based principal at US energy consultancy Purvin and Gertz, said the high oil prices could also be blamed on tight supply amid strong demand from the United States, China and India which had caught the market by surprise.
He said surplus production has fallen to only one million barrels of oil a day from three to five million over the past few years.
Threats of disruption to these already tight supplies are conspiring to keep the volatile situation boiling.
"Fundamentaly, there is a very tight supply-demand balance in the petroleum market," Barrow told AFP, adding that any disturbances in major producers such as Iraq, Nigeria, Russia and Venezuela are bound to affect prices.
Prices to remain high
Stacked oil drums
Barrow said prices are expected to remain high for some time.
"Much depends on what world events happen over the next six to 18 months," he said.
"Our view is that the price will remain high and volatile really until some additional production come on stream, perhaps later this year or likely next year."
"Once we rebuild this supply cushion, then it's likely that prices will come back down. Until then, we expect oil prices to stay high."
Barrow said hedge funds and speculative trading were acting "to exacerbate the volatility but I think that even without these you will still see high oil prices."
Germany's Economics Minister Wolfgang Clement described the high price of oil as a danger for the global economy.
"They definitely pose a risk," Clement said late Monday in Berlin. He added that governments must find a way to prevent oil prices from spiralling even higher due to speculation.
The current oil crisis is expected to feature in Tuesday's meeting between German Chancellor Gerhard Schröder, and Norwegian Prime Minister Kjell Magne Bondevik. Germany relies on Norway for 20 percent of its oil and gas needs.