- US oil prices have hit a record $42 a barrel, following
an attack by Islamic militants on a residential compound in Saudi Arabia
which left 22 people dead.
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- There is growing concern that al-Qaeda-inspired violence
may now target the disruption of oil supplies from the world's biggest
oil exporter.
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- Recent attacks have focused on offices and housing compounds
rather than on stopping the flow of oil.
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- Brent crude had surged $2.08 to $38.68 a barrel in late
London trade.
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- Meanwhile, US light, sweet crude cooled a touch in afternoon
New York trade at $41.80 a barrel, still up $1.92 from Friday's close.
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- The latest price rises came as producers' cartel Opec
geared up for a meeting on Thursday, at which it is expected to agree to
raise output in an effort to ease high prices.
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- "There is a near consensus on raising production,"
Qatari Energy Minister Abdullah Bin Hamad al-Attiya said, stressing that
Opec would do "everything it can" to calm the market.
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- Escalation
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- Oil prices are already very high, thanks to factors including
increasing demand, low stocks, Opec's price strategy and fears of supply
disruptions.
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- Analysts are concerned the attack could be the beginning
of a series of assaults by militants to disrupt Saudi supplies.
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- A statement purporting to be from al-Qaeda and claiming
responsibility for the weekend violence said the attacks had been directed
at "American companies... that are specialised in oil and steal the
wealth of Muslims". "This is the worst escalation in terrorism
in Saudi Arabia we've seen. It shows these guys are serious and will attack
again," said independent London energy analyst Geoff Pyne.
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- "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."
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- Investec Securities analyst Bruce Evers said any disruption
of Saudi production "would be critical not only to the Saudi economy
but the global economy."
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- "If they suddenly start to attack oil installations
we are going to be in serious trouble. Obviously the oil installations
are very heavily guarded but it does not mean that they won't try to attack
them," he said.
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- Production promise
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- 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.
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- Leading oil producing nations have attempted to reassure
the markets, signalling that Opec will lift output.
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- 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.
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- 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".
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- Economy worries
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- 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.
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- Leading non-Middle Eastern producers Russia, Nigeria
and Mexico have also promised in recent weeks to boost output, but substantial
production increases are thought to be unlikely in the short term because
of technical constraints.
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- 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.
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- Big price increases also encourage industrialised nations
to invest in alternative sources of energy, which, if successful, could
permanently cut oil consumption.
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- 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.
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- Oil prices could overshadow Tuesday's monthly summit
of European Union finance ministers.
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- 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%.
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- It would also boost average inflation to 2% from an initial
forecast of 1.8%.
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- © BBC MMIV http://news.bbc.co.uk/2/hi/business/3763313.stm
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