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Oil price jumps after Saudi siege

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    Oil price jumps after Saudi siege http://news.bbc.co.uk/1/hi/business/3763313.stm Fear of further Middle East unrest has pushed oil prices higher, despite
    Message 1 of 1 , Jun 1, 2004
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      Oil price jumps after Saudi siege
      http://news.bbc.co.uk/1/hi/business/3763313.stm
      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
      supply.

      "There is a near consensus on raising production," Qatari Energy Minister Abdullah Bin Hamad
      al-Attiya said.


      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
      agency.

      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.

      Production promise

      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".

      Economy worries

      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
      demand.

      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%.
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