Oil prices surge on fresh wave of Nigerian sabotage

Oil prices surged in London yesterday after Nigerian militants blew up a pipeline in the latest act of sabotage against the world's eighth largest exporter.

Markets were already reeling from a weekend of violence that saw attacks on Shell installations that knocked out of a fifth of production from the west African state.

With US markets closed for a holiday, Brent crude prices on the London market rose almost $1.50 a barrel to $61.35. "There is a realisation that no one can be complacent about supplies," the independent oil consultant Geoff Pyne said.

Eoin O'Callaghan, an economist at BNP Paribas, said the loss of Nigeria's "sweet" oil, which is in strong demand from refineries, meant the loss of output would "punch above its weight".

The market was already on edge after a growing chorus of members of the oil producers' cartel Opec hinted at a cut in production next month.

Iran's deputy oil minister Mohammad Hadi Nejad-Hosseinian said he expected demand for Opec crude to drop by 2 million barrels per day to 26 million in the second quarter. He told Reuters that Iran's policy at the 8 March meeting would be "to keep prices between 50 and 60 dollars".

The Kuwaiti oil minister Sheikh Ahmad al-Fahd al-Sabah forecast a surplus of up to 2 million barrels in the second quarter, while Qatar's oil minister Abdullah al-Attiyah said at the weekend he believed markets were over-supplied.

Mr O'Callaghan said the Opec meeting on 8 March would come on the same day that the International Atomic Energy Agency delivers its report on Iran's nuclear activities. "In these circumstances, Opec's decision will not be clear-cut and the potential for a negative market reaction to a cut will influence their decision," he said.

"If they don't cut, the fundamentals will weigh even more heavily on the market and could support periods of sharp falls in the oil price in periods of little geopolitical news, like we saw in the first half of this month."

Yesterday's moves brought a dramatic end to a steady decline from last year's record high of above $70 a barrel in New York prices.

The US president George Bush yesterday repeated his message that the US needed to reduce crude oil imports to ensure it could not be "held hostage" by oil-rich countries that may not be allies.

"Some of the nations we rely on for oil have unstable governments or fundamental differences with the United States," Bush said during a visit to a factory in Wisconsin. "These countries know we need their oil, and that reduces influence."

Opec and the International Energy Agency have trimmed their oil demand growth forecasts in recent weeks as persistent high prices make themselves felt. A barrel of oil costs more in real terms than for a quarter of a century.