As Tension In Nigeria Worsens, Oil Eyes $50 For Early 2009

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Drops in consumer and corporate spending are about to compounded by high fuel prices as crude is likely to move to $50 or better early in 2009.

Both sides in the Gaza conflict have indicated that the fighting could go on for weeks, and there is no reason to believe that the dispute between the parties will not stretch into months. The 2006 Lebanon War went on for more than thirty days.

The Middle East conflict and its effect on oil prices is likely to be worsened by a looming military conflict in Nigeria.

According to Bloomberg, "The arrest of suspected militant leader Sobomabo Jackrich by the Nigerian military may push rebels into retaliating against the government, the Movement for the Emancipation of the Niger Delta group said."

Early in 2008, oil experts said that battles inside the country’s borders have cut "around 17 percent of the West African country’s installed output capacity of around 3 million bpd." Nigeria’s oil reserves rank 10th among the world’s nations, just ahead of the US.

In July, the rebel group said it would escalate attacks on oil facilities if it did not receive substantial payments from the central government.

With two million barrels of oil produced per day, a shutdown of Nigeria’s oil shipments would be a much bigger issue for crude prices than the current Gaza military conflict.

Although it has been less visible than the problems in the Middle East, Venezuela president Hugo Chavez may be working to take control with the entire government, which would put him at odds with a number of powerful opposition parties and could spark a civil conflict.

The next few weeks could set the tone for oil prices which could stretch well into 2009.

Douglas A. McIntyre