Algeria Attack 'Wake-Up' Call for Oil Markets
Market Reporter, CNBC Asia Pacific
Global oil markets, under pressure from increased North American production, are facing the return of a familiar upside risk - the threat of supply disruption from North Africa after an attack on an Algerian gas field swiftly escalated into an international hostage crisis.
An al Qaeda affiliated group attacked the In Amenas gas facility in eastern Algeria on Wednesday morning, claiming to have kidnapped up to 41 foreigners including seven Americans reportedly in retaliation for France's intervention in Mali.
Three people, including a Briton and a French national, are believed to have been killed. The gas field is operated by a joint venture including BP, Norwegian oil firm Statoil and Algerian state company Sonatrach, Reuters reported.
"This is a wake-up call for oil markets which had become complacent over recent times," said Gavin Wendt, senior resource analyst at MineLife in Sydney.
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"We are only ever a heartbeat away from a major geopolitical issue somewhere in the world. The Arab Spring is far from over and Algeria is one country that hasn't been discussed - but where tensions are high. Markets had grown complacent on the back of higher U.S. production, but the reality is that a higher risk premium should - and will - be factored into crude prices."
Benchmark oil markets did push higher, with U.S. crude futures climbing almost a $1 a barrel to $94.24 on Wednesday, having traded in the range of $93.10 to $94.36. Brent's reaction was a little more muted with the expiring February crude contract rising 31 cents to settle at $110.61 a barrel.
"The Algerian events remind us that the world is a dangerous place and geo-political risk premiums are appropriate for energy sectors," said David Kotok, chief investment officer at Cumberland Advisors, which has $1.9 billion in assets under management.
Tom Weber, senior commodity advisor at Portfolio Managers added: "The question is: Is this a one-off or a new AQIM (Al Qaeda in the Islamic Maghreb) tactic? We'll need to see what the demands for release are. You can bet that drones are circling the area. If WTI can't break $95 decisively, look to move back down towards $90.50."
This scale of the incident appeared to have caught many off guard.
"The ability of these militants to penetrate Algeria's gas-rich region is a worrying development and somewhat unprecedented," said Philippe de Pontet, Africa director at global political risk consultancy Eurasia Group. "Algeria's borders are some of the most formidable in the region and yet we saw that they can be vulnerable."
Lars Christian Bacher, executive vice president for Development and Production International at Statoil - one of the three joint-venture operators of the In Amenas facility - described the ongoing hostage situation as "one of the most serious incidents" the company has experienced.
Monitoring the Situation
Seventeen Statoil employees were in or around the facility on Wednesday morning, the company said. Thirteen are Norwegian. "We have received information that five of the 17 are brought to safety in a military camp in the area," Bacher said in a statement on the firm's website.
"We are continuously monitoring and working to resolve the situation. We are unfortunately unable to give further details about the situation, the ongoing response or the remaining 12 Statoil employees. This is with regards to the safety of those involved," Bacher added.
A Statoil official told CNBC that CEO Helge Lund will hold a press conference at the company's Forus headquarters in Stavanger later Thursday, providing the latest details on the hostage crisis.
In London, a BP spokesman told CNBC that the oil company continued to work "to ensure the safety and security of our staff" held in In Amenas facility. The company confirmed that the In Amenas field, which was in production when attacked, had since shutdown.
BP's second gas facility in Algeria, In Salah, 300 kilometers west of the attacked site of In Amenas, is "operating with heightened security," the company said. BP's output from Algeria represented 40,000 barrels a day oil equivalent in 2011, out of 3.3 million barrels a day globally including Russia.
Strategists warned U.S. crude futures could break the century mark should Islamist militants continue to target Algeria and if the turmoil spreads across the border to neighboring Libya, which has been rehabilitating its oil industry after the damaging civil war in 2011.
"If this senseless act of violence grew and spilled over into Libya then I believe crude oil would see a move above $100 a barrel in short order," said John Licata, chief commodity strategist at Blue Phoenix.
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"That assessment would be bolder if supplies of oil were impacted in Q2 as refiners will begin moving from winter blend to more in demand summer blend gasoline."
Security is under review at Libyan oilfields following the Wednesday attack across the border in Algeria, according to a report in the Libya Herald on Thursday. "We are serious in protecting our petroleum installations," the report quoted Prime Minister Ali Zeidan of Libya as saying when asked about the safety of oil workers in Libya. "God willing, no oil workers will be abducted. . . If oil workers are abducted - we cannot rule it out - we will deal with it."
Johannes Benigni, managing director at JBC Energy said Algeria's problems add to a litany of political woes that continue to unfold across North Africa and the Middle East, which invariably draw oil and natural gas into the volatile mix.
"Watch the Kurdish region as well," Benigni said, adding that the Iraqi government is "furious" about the Kurdistan Regional Government (KRG) allowing Genel Energy - the oil company run by the former BP chief executive Tony Hayward and the first to export oil directly from Kurdistan. The UK daily The Independent reported on Wednesday that Baghdad is preparing to sue Genel Energy for "illegally" exporting some of the oil it produced in the semi-autonomous region of Kurdistan.