NEW YORK – Oil prices fell 4 percent Tuesday as Nigerian unions called off a planned general strike, raising hopes that oil production halted there by recent ethnic clashes might soon restart.
The move eased fears of further disruption to world oil supplies with Iraq's crude exports halted since near the start of a 13-day U.S.-led invasion.
U.S. light crude slid $1.26 a barrel to $29.78 while London benchmark Brent futures fell 82 cents to $26.36 a barrel. Oil prices are more that $10 a barrel below 12-year highs hit in late February.
Prices fell as Nigeria's biggest union called off a planned three-day strike. "News of the agreement on the Nigerian strike has given the market some breathing room," one London oil trader said.
Recent tribal clashes have shut nearly 40 percent of Nigeria's 2.2 million barrels per day (bpd) of crude production for more than a week. The West African country is one of the top six oil suppliers to the United States and U.S. refiners need Nigeria's high-quality crude to build up gasoline stocks for summer.
Oil companies Shell and ChevronTexaco have said they will not resume operations from Forcados and Escravos in the western Niger Delta region until they can be sure of their staff's safety.
Jitters spurred by the Nigerian and Iraqi supply disruptions have helped support oil prices in recent days since the market fell 25 percent just before the the war when dealers took the view that Baghdad would not resist for long.
Tuesday's falls gained pace after Iraq's Information Minister delivered a television message from President Saddam Hussein, fueling speculation that the Iraqi leader may be dead.
"People interpreted the fact that Saddam Hussein did not deliver his own message as 'He is no longer with us,"' said a New York trader.
Prices have come under further pressure from signs that world oil supplies are sufficient to meet lower seasonal demand in the second quarter.
"What's driving prices right now is the offset between supply security fears, balanced against expectations of softer demand, which you normally get at this time of the year," said Kevin Norrish, energy analyst at Barclays Capital.
The Organization of the Petroleum Exporting Countries has compensated for lost Iraqi and Nigerian crude with increased supplies. Top world exporter Saudi Arabia in March hit its highest production level for 21 years.
"As far as the war is concerned, we have lost Iraqi supplies but clearly OPEC is still managing so far to make up for that," Norrish said.
Global energy demand on the 77 million bpd world market normally drops about 2 million bpd in the second quarter when warmer weather sets in the United States and Europe.
Demand then picks up again when gasoline consumption for motorists rises during the summer holidays.
Nigeria's high-quality crude, ideal for gasoline production, is missed because it is a popular feedstock among U.S. refiners.
Gasoline stocks in the United States are running well below year-ago levels as the world's biggest consumer of motor fuel gears up for peak demand.
"Looking at where U.S. gasoline inventories are and where prices are, lots will depend now on how soon Venezuela will get its gasoline production back to normal," Barclays' Norrish said.
Venezuela, struggling to get output back on stream after a crippling opposition strike, has said it will this week restart gasoline exports to the United States and expects all refining and exports to return to normal within four to six weeks.
The strike had contributed to extremely tight oil inventories in the West even before the war in Iraq.
Analysts polled by Reuters predict that U.S. government data due on Wednesday will show a large crude stock rise after a week of heavy imports.
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