Terror fears send oil prices surging
Oil prices surged to their highest level in 13 years today 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 Saudi Arabia by sending the price of a barrel of crude to $35.21 (€29.20).
Speculation that oil cartel OPEC may press ahead with production cuts also propped up the sky-high price of oil, which was last higher in the build up to the Gulf War in 1990.
It came as the International Energy Agency (IEA) warned that high oil prices could wipe 0.5% off the GDP of countries with the euro in 2004 and 0.3% off growth in the United States.
In a report published today 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 many western nations.
Bruce Evers, of stockbrokers Investec, said: “How much higher they (petrol prices) 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 US dollar was cushioning the impact of the higher cost of crude on prices at the pumps, he said.
But the greenback was now 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,” Mr Evers added.
The warning comes just 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.
But it is the threat of terrorist attacks on oil installations in the Middle East that is proving to be the greatest concern.
The recent upsurge in violence in Iraq spread to oil facilities a week ago, heightening fears of a potential disruption to energy supplies from the region.
“This is the second consecutive weekend that key Middle Eastern oil installations have come under assault,” said Tom Kloza, director of the Oil Price Information Service.
The IEA report found that political uncertainty in major oil producing regions had contributed to current market conditions becoming more unstable than normal.
It warned of “painful consequences” for importing countries from a sustained rise in oil prices.
“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.
