Financial Times: Global equity markets move into broad retreat: "The market faces the prospect of years without sufficient flexibility or insulation from shocks during a period of extreme geopolitical stress," Paul Horsnell of Barclays Capital told Reuters.” (ShellNews.net)

By Kevin Morrison and Michael Morgan in London, Michael Peel in Lagos, Jennifer Wiggins in New York and Enid Tsui in Hong Kong

September 28 2004

Global equity markets were sent into broad retreat as oil prices surged to record highs.

Crude oil futures, which touched $50 per barrel after-hours in New York, continued to rise in Asia trading on Tuesday morning, with the benchmark Nymex light crude for November delivery hitting an all-time high of $50.37 per barrel at 0500 GMT .

Asia’s major stock averages all moved downward as a result. The Nikkei 225 dropped 1.1 per cent to 10,741.1, the Hang Seng Index fell 0.7 per cent to 12925.99 and the Straits Times Index was down 0.4 per cent at 1975.80 by midday.

The rise in oil prices came on news of threats to supply in Nigeria and the possibility of renewed violence from al-Qaeda in Saudi Arabia after the killing of a Frenchman in Jeddah.

On Monday the Nigerian rebel group fighting government troops in the oil-rich Niger delta said it would launch "all-out war on the Nigerian state" from Friday, and advised all oil companies to shut production by then.   

The Niger Delta People's Volunteer Force, in a communique issued after a meeting of its central command, also advised all foreigners to leave the delta, which pumps all of Nigeria's 2.3 million barrels per day production.

"The market faces the prospect of years without sufficient flexibility or insulation from shocks during a period of extreme geopolitical stress," Paul Horsnell of Barclays Capital told Reuters.

As oil markets enter a period of high winter demand, official figures indicate that US inventories are near 25-year lows.

On Monday night the US government said the national price for petrol had jumped 5.1 cents a gallon over the last week while diesel fuel hit a record high.

Monday's oil price rise hit the Dow Jones Industrial Average index, which fell below 10,000 early on, and closed down 56.41 points, or 0.56 per cent, at 9,990.83.

European equity markets retreated to their lowest levels for almost three months. The FTSE Eurotop 300 index lost 0.7 per cent to 985.28; in London, the FTSE 100 index fell 0.8 per cent to 4,541.2; and Frankfurt's Xetra Dax index lost 0.9 per cent. and Amsterdam's AEX index fell 0.8 per cent.

"People are worried about higher oil prices cutting into profit margins," said Drew Matus, senior financial economist at Lehman Brothers. Some market observers said the 10,000 mark was an important technical threshold, predicting that the index might drop towards 9,800.

Energy analysts said the rise in oil prices, which have climbed 53 per cent this year, was far from over. "We could see oil price spikes over $60 this winter if there are further supply disruptions," said Deborah White, energy analyst at Société Générale in Paris. Ms White said the oil markets were concerned about the latest round of violence in Nigeria,

Benchmark US crude futures hit $49.74 a barrel on Monday from a previous high of $49.20 set last month, before closing up 76 cents at $49.64.

In after-hours trading in New York, crude was at the highest in the 21 years oil futures have traded on the exchange, before falling back to $49.85. Benchmark Brent crude futures passed $46 a barrel for the first time, before closing at $45.93.

Oil prices in real terms, however, are still well below their all-time highs reached in the late 1970s.