Saudi attack sparks rise in oil
On London's IPEX, Brent crude traded around $37 last week.
GLOBAL OIL BALANCE
(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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(CNN) -- Oil prices jumped by more than a dollar in the first main trading session since a weekend attack in Saudi Arabia by suspected al Qaeda militants left 22 people dead.
U.S. light crude was up more than $2 to $42.33 a barrel -- a gain of more than 5 percent -- on Tuesday.
Brent crude rose $2.07 to $38.65 a barrel, about 5 percent higher, in London.
Oil last traded Friday in New York at $39.88 and in London at $36.58.
Both key oil markets were closed Monday for public holidays.
Saturday's deadly rampage in the oil city of Khobar had been expected to push oil prices back near their record highs of $41.85 a barrel reached on May 17, despite Saudi Arabia vowing to keep oil supplies flowing.
Analysts now expect the "terrorist premium" on oil prices to rise in coming weeks following the attack in Saudi Arabia.
Although oil facilities were not affected in the Khobar attack, analysts says the incident will heighten concern about supply security in the Middle East.
"This is the worst escalation in terrorism in Saudi Arabia we've seen. It shows these guys are serious and will attack again," Geoff Pyne, an independent energy analyst in London, told Reuters.
"Even if they are not capable of doing serious damage to oil infrastructure, political instability and the threat to the ruling family is of real concern and promises to haunt the oil market for some time to come."
George Worthington, Asia Pacific chief economist for Thomson IFR, 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 (bpd) 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.
On Monday, Qatar said it would support a move by OPEC to increase supply.
Oil prices are up about 25 percent since the end of 2003 on instability in the Middle East and higher than expected demand, particularly in the United States, China, India and other parts of Asia.
Low global fuel stocks have also helped drive prices higher.
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.