NIGERIA - GCC Awash With Cash.

Arab Gulf oil producing countries in 2005-06 will embark on a "massive accumulation of foreign assets" as they cash in on record oil prices and soaring world petroleum demand. They will buy about $360 bn of foreign assets, from bonds to property in 2005 and 2006 - 50% more than their total purchases of the past five years, according to a study by the Institute for International Finance (IIF), the leading association of private banks.

The IIF, which specialises in tracking capital flows in emerging markets, says: "The Gulf Co-operation Council [countries] are in the midst of a period of exceptional economic performance". It estimates that accretions of foreign assets this year and next by the GCC governments and private investors of Saudi Arabia, Kuwait, the UAE, Bahrain, Oman and Qatar will outgrow China's accumulation of foreign exchange reserves over the past two years. It adds: "High oil prices and production should ensure that the economic boom is sustained".

The GCC region - as in the case of Iran, with Iraq producing over 2.1m b/d - is pumping oil at the highest rate in 25 years to keep pace with growing demand from the US and Asia - WTI at $65/b is triple the average of the 1990s. The IIF says: "We assume that the bulk [of the foreign assets stock] is held in diversified portfolios of foreign holdings, with US dollar-denominated assets accounting for the largest share".

However, the IIF says there "is anecdotal evidence that an increasing proportion of foreign assets [from GCC oil producing countries] are being invested in other Middle Eastern countries". The stock exchanges of Jordan, Egypt and Turkey have all gained from the GCC's flow of petrodollars. The oil producing countries have been active in the mergers and acquisitions market, with purchases of companies amounting to $10 bn so far this year.

In a recent report, HSBC said: "The amount of liquidity available to Gulf investors has meant that they have been able to influence global industries in a direct way". Saudi Arabia, the world's largest oil producer and exporter, is accumulating foreign assets this year at about $4 bn a month, according to the Riyadh-based Saudi American Bank (Samba). Saudi Arabia's oil revenues are forecast to be greater between 2004 and 2006 than for the whole of the 1990s.

The oil futures markets have been driven higher by one of the worst sequences of US refinery outages in years. On Aug. 8, Valero and ConocoPhillips both confirmed they had refinery problems. BP's big refinery in Texas had some of its units suspended. Oil and gas prices were also lifted by Iran's resumption of nuclear activities. The refining outages heightened concerns that the system had been pushed too far for too long, especially in the US, and cannot keep pace with demand.

On Aug. 8, President Bush signed a $14.5 bn energy bill, containing incentives to boost energy production. He said the law would "help every American who drives to work, every family that pays a power bill". High gasoline prices helped in developing the political momentum to win approval for the bill in Congress.

A sequence of accidents and lack of spare capacity mean refineries could face difficulties meeting demand this winter. The IEA says oil consumption will reach 85.9m b/d in the fourth quarter, up from 83.7m b/d now. Global refinery utilisation rates this year have exceeded 95%, up from 75% two decades ago. ExxonMobil, BP and Shell have suffered outages in recent weeks at US and European refineries.

Nigerian Exports Vulnerable To Violence: NNPC, as well as the foreign and local oil producers, have been sold out of crude oil through most of the period from late 2003 to early 2006. Shell, Chevron and other operators in the Niger Delta, a highly volatile area, are worried that violence may recur in late 2005 as in late 2004, which could affect their exports.

Tension began on Dec. 5, 2004, when members of the Kula community occupied several facilities operated by Shell and Chevron in the east of the Niger Delta. About 110,000 b/d of Shell's 500,000 b/d Bonny Light stream and some of Chevron's Escravos production were shut in as a result.

In late December Shell was compelled to declare force majeure on crude oil loadings at its Bonny terminal. Shell then was worried that December delays would upset loading schedules through January and February. There is the worry that a similar situation could occur this winter.

Shell still has some of its output capacity shut in. Chevron has 140,000 b/d of its production capacity closed since the violence of 2004.

The head of the Nigerian Association of Petroleum Explorationists, Austin Avuru, was in April 2005 quoted as saying that violence in the Niger Delta was increasing operating costs in onshore and shallow-water fields from a little over $2/b to about $7/b. He said: "The crisis in the Niger Delta has meant that drilling operators, suppliers and other contractors double their charges in the onshore and shallow waters. Companies devote almost 10% of their operating costs to the oil communities" in that region.