[A-List] Global economy: impending oil crisis

["Michael Keaney" <michael.keaney@xxxxxx>]

Terrorist fears send oil prices soaring
CAMERON SIMPSON
The Herald, May 05 2004

OIL prices surged to their highest level in 13 years yesterday amid fears of
a terror campaign against the oil industry in the Middle East.

Traders responded to the weekend killing of five westerners working for an
oil contractor in Yanbu, Saudi Arabia, by sending the price of a barrel of
crude to £19.66, its highest since the Gulf war in 1990.

Speculation that Opec, the oil cartel, may press ahead with production cuts
also propped up the sky-high price.

The surge in prices came as the International Energy Agency (IEA) warned
that it could wipe 0.5% off the GDP of countries with the euro in 2004 and
0.3% off growth in the US.

In a report on the impact of high oil prices on the global economy, the IEA
said they would contribute to "stubbornly high levels of unemployment and
exacerbate budget-deficit problems" in western nations.

Motorists were braced for higher prices on the forecourts of petrol stations
after a litre of unleaded passed 80p last week.

Bruce Evers, of Investec, the stockbrokers, said: "How much higher they go
is really dependent on how much higher the oil price goes - and it's looking
uncomfortable at the moment."

Only the weakness of the dollar was cushioning the impact of the higher cost
of crude on prices at the pumps, he said.

However, the dollar was gaining ground against currencies, including the
pound, and this was putting pressure on oil giants to respond.

"It's only a matter of time before oil companies are forced to raise prices
at the pumps," Evers added.

The warning comes days after Shell and BP unveiled better-than-expected
profits in the first three months of this year.

Both companies supported the view that oil prices would remain high over the
coming months, citing factors including low inventories and strong demand in
the US and China.

It is, however, the threat of terrorist attacks on oil installations in the
Middle East, which accounts for roughly one-third of global oil production,
that is the greatest concern.

Saturday's attack in Yanbu has raised fears that militants might target oil
infrastructure in Saudi Arabia, the top crude exporter, where energy
facilities are tightly protected.

"The rampage occurred away from the major oil installations but (was)
nonetheless alarming. This could be a portent of further disasters," warned
brokers Refco.
Only days ago, US-led forces foiled a co-ordinated seaborne attempt by
suicide bombers at the key Basra oil export terminal in southern Iraq.

Tom Kloza, director of the Oil Price Information Service, said: "This is the
second consecutive weekend that key Middle Eastern oil installations have
come under assault."

The IEA found that political uncertainty in oil-producing regions had
contributed to unstable market conditions and that there was no relief in
sight from high prices.
"The hike in futures prices during the past several months implies that
recent oil price rises could be sustained. If that is the case, the
macro-economic consequences for importing countries could be painful.

"Fiscal imbalances would worsen, pressure to raise interest rates would grow
and the current revival in business and consumer confidence would be cut
short, threatening the durability of the current economic cycle," the IEA
said.

Opec oil ministers, who control around 40% of exports, say the price surge
is driven by forces out of their hands.

The group cut production quotas by 4% from April 1, concerned that prices
could fall as demand declines after winter.

Opec ministers are due to meet on June 3 in Beirut to review production
policy.

Saudi Arabia yesterday vowed to strike hard at "deviants" who attacked the
oil facility. The interior minister has blamed Osama bin Laden's al Qaeda
network for the attack.

The Gulf Arab states signed a counter-terrorism pact to share intelligence
yesterday and vowed to step up the fight against rising threats.

-----

Brent crude hits 13½-year high on security concerns
By Kevin Morrison
Financial Times, May 5 2004

Brent crude oil prices on Tuesday reached their highest in 13½ years on
fears about oil supplies following attacks on a petrochemical plant in Saudi
Arabia on the weekend.

The latest attack has triggered widening concern about security of supply
from the Middle East following the foiled suicide attack on the Basra oil
terminal in southern Iraq last week, and widespread unrest elsewhere in the
Middle East, which has seen attacks in Syria and Turkey recently.

IPE Brent futures for June delivery closed at $35.93 a barrel in London,
their highest since October 1990, during the first Gulf War, up $1.45 on the
day, the sharpest one-day rise since January.

June Nymex ended the day 77 cents higher at $38.99 a barrel in New York,
just below its intra-day peak of $39.15, its highest level since the Iraq
war last year.
Nymex gasoline futures reached another record high for the second successive
day. June Nymex gasoline futures peaked at $1.2975 a barrel, before settling
at $1.2920, a rise of 3 cents.

The oil price surge follows an attack on Saturday that killed five workers
at a petrochemical plant in Yanbu city in Saudi Arabia. Saudi interior
minister Prince Nayef bin Abdul-Aziz said he believed al-Qaeda was behind
the attack. There has been no claim of responsibility for the killing of two
Americans, two Britons, an Australian, and two Saudi security personnel in
Yanbu.

Seth Kleinman, energy analyst at PFC Energy, said that the latest price move
could see Nymex crude move up to $40 a barrel.

"We may see some spikes up to $40. Fundamentally, there is no reason for oil
prices to be near that level, but there is a lot of speculative interest and
a few technical factors might see the price break $40. But it is unlikely to
hold above that for long," Mr Kleinman said.

The International Energy Agency (IEA), energy adviser to 26 industrialised
nations, warned this week that high oil prices could "inflict substantial
damage on the economies of oil- importing countries and on the global
economy".

Gold prices also rose as investors flocked to safe havens on the back of the
security issues in the Middle East, and due to a weaker dollar ahead of the
Federal Reserve meeting last night. Gold rose $6 to $392.20/$392.90 a troy
ounce.

"The yellow metal moves were dollar-fuelled with profit-taking capping
further gains so far, although the 43.3m ounce clear-out reflected in
Friday's Commitment of Traders report should improve the short to
medium-term forecast," said James Moore, gold analyst at TheBullionDesk.com.

Platinum prices rose by $6 to $815/$820 a troy ounce, having lost more than
$100 in the past three weeks.