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Rise seen in oil 'terror premium'

On London's IPEX, Brent crude traded around $37 last week.
(millions of barrels per day)
Demand, May 2004: 80.6
Supply, May 2004: 81.5
Growth over 2003: 2.0
Source: International Energy Agency, May 2004
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Oil and Gas
Organization of Petroleum Exporting Countries (OPEC)
Saudi Arabia

(CNN) -- The "terrorist premium" on oil prices is expected to rise in coming weeks following the weekend attack by militants on foreign oil workers in Saudi Arabia.

Analysts say while oil facilities were not affected in the Khobar attack on Saturday that killed at least 22 people, the incident will heighten concern about supply security in the Middle East.

Prices have had little opportunity to react yet.

In Tokyo, crude oil futures rose 2.3 percent to about $33 a barrel Monday.

But key oil markets -- NYMEX in New York and IPEX in London -- are closed for public holidays.

Oil last traded in New York Friday at $39.88 for July delivery and in London at $36.58 for July Brent crude.

"When trade resumes tomorrow (Tuesday) night, we expect prices to push back towards the record highs of $41.75 a barrel of recent weeks," commodity strategist David Thurtell of Australia's Commwealth Bank said in a commentary Monday.

"To a large extent, the current high prices have already factored in events like the one on the weekend," he said.

George Worthington, Asia Pacific chief economist for Thomson IFR, said Monday that the holidays in the United States and Europe Monday may dampen the immediate impact of Saturday's attack on oil prices.

But he said the terrorist premium on crude -- now about $8 a barrel -- was likely to rise in coming weeks.

Worthington said a successful attack on one of Saudi Arabia's main oil export terminals was no longer a far-fetched possibility, and could see prices jump to $50-$60 a barrel, "depending on the time needed to restore flows."

He identified this as the most serious single risk to the global economy, particularly for Asian economies which rely heavily on imported oil.

He said soaring demand for oil from China, India and other rapidly growing energy intensive economies, combined with the recovery in the United States, was causing the oil market to "tighten significantly."

Excess capacity was as little as 2-3 million barrels a day by some estimates, he noted.

Most of this capacity is in Saudi Arabia, the world's biggest exporter. It has already said it will lift production 10 percent to 9.1 million bpd in June, and is ready to pump its maximum 10.5 million bpd if demand warrants it.

The question of oil supply security is expected to figure prominently role when the Organization of Petroleum Exporting Countries (OPEC) meets in Beirut on Thursday.

That meeting will consider a proposal by OPEC member Saudi Arabia for a substantial increase in the production ceiling for the cartel.

Saudi Arabia has already vowed to keep its crude supplies flowing smoothly to world markets despite the Khobar attack. (Full story)

The United States says that along with Saudi Arabia, it sees signs of extra oil supplies from non-OPEC members Mexico, Nigeria and Russia.

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