Oil price jumps after Saudi siege
- Oil price jumps after Saudi siege
Fear of further Middle East unrest has pushed oil prices higher, despite exporters saying they
are near to agreeing an increase in output.
Prices rose 1.7% in Asia to $40.50 for US light crude, while Brent crude oil in London rose
$1.25 to $37.85.
Militants killed 22 people in Saudi Arabia over the weekend, prompting fears of disruptions to
"There is a near consensus on raising production," Qatari Energy Minister Abdullah Bin Hamad
He pledged the Organisation of Petroleum Exporting Countries would do "everything it can" to
calm the market.
Oil prices are already high, owing to an increase in demand from Asia and the Iraqi conflict.
"The immediate impact [of the weekend attacks] is more panic and an additional premium in
prices, which will surge," Abdulwahab Abu-Dahesh, senior economist at Riyad Bank, told the AFP news
Opec president Purnomo Yusgiantoro also acknowledged that the Islamic militants' new strategy
of targeting oil facilities in Saudi Arabia - the only producer with sufficient spare capacity to
influence prices - was a worrying development.
"We are concerned because we hope they are going to be leading the increase in production,"
the Opec president said.
Two weeks ago, US oil prices peaked at $41.85, the highest level on record, although
economists point out that prices were far higher in real terms - which takes inflation into
account - during the oil shock of the late 1970s.
Leading oil producing nations have attempted to reassure the markets, signalling that
exporters' cartel Opec will back a production increase when it meets in Beirut this Thursday.
Saudi Arabia has proposed that Opec members should raise output by up to 2.5 million barrels a
day, and has unilaterally committed itself to pumping another 800,000 barrels a day.
Opec is thought to be already breaching its official daily production ceiling of 23.5 million
barrels by about 2 million barrels a day.
But an Opec spokesman said three of the organisation's members - Saudi Arabia, Kuwait, and the
United Arab Emirates - could between them add three million barrels a day "at short notice".
However, some analysts believe the time lag between agreeing a production boost and the extra
oil reaching the marketplace would keep prices high for the time being, even if Opec did achieve a
genuine increase in output.
Leading non-Middle Eastern producers Russia, Nigeria and Mexico have also promised to boost
output in recent weeks, but substantial production increases are thought to be unlikely in the short
term because of technical constraints.
Oil exporting nations benefit in the short term from high oil prices, but prefer to avoid
major price spikes as these dent economic growth in industrialised nations, leading to a drop in
Big price increases also encourage industrialised nations to invest in alternative sources of
energy, which, if successful, could permanently cut oil consumption.
Opec has an official price target of between $22 and $28 a barrel, although some members have
recently called for this to be increased to offset a recent decline in the value of the dollar.
Oil prices could overshadow Tuesday's monthly summit of European Union finance ministers.
According to the European Commission, a 25% jump in oil prices this year would reduce eurozone
growth to less than 1.6% from an original forecast of 1.7%.
It would also boost average inflation to 2% from an initial forecast of 1.8%.